Shock inflation increase makes for a tough interest rate decision this week

Annual consumer price inflation (CPI) climbed to 5.9% in October from 5.4% in September, edging closer to the outside of the SA Reserve Bank’s (Sarb's) targeted band of 3% to 6%, marking a third consecutive increase. The figure was higher than economists expected. 

"South African headline inflation jolts the market by printing much higher than the consensus had expected in October. Although fuel price pressures were widely anticipated, no-one had forecast a spike back in year-on-year headline inflation, almost to the upper end of the Sarb’s inflation target," Razia Khan, managing director and chief economist for Africa and Middle East at Standard Chartered Bank, said. 

The main contributors to the increase were food and non-alcoholic beverages, which rose 8.7% year-on-year, housing and utilities, transport, and miscellaneous goods and services.  

CPI is now at its highest level since May this year and will be one of the factors the Monetary Policy Committee (MPC) meeting will have to consider as it makes its final decision on interest rates on Thursday afternoon. The consensus among economists before the CPI number was that the MPC will keep rates on hold at 8.25%, a 14-year high, with relief only coming in the second or third quarters of next year. 

The month-on-month change in CPI was 0.9%. 

Earlier this month, Elize Kruger, an independent economist, said a large drop in the cost of petrol due in December may mean the Reserve Bank will "look through’" any blip in inflation numbers.