A calculated cut

SOUTH AFRICA’S headline consumer inflation increased modestly to 3.6% year-on-year (YoY) in October from 3.4% in September, undershooting market expectations and reflecting a broadly contained inflation environment.

- CASEY SPRAKE

The key source of downside surprise relative to forecasts was food and nonalcoholic beverages (FNAB) inflation, which decelerated to 3.9% YoY, from 4.5% YoY in September. This moderation contributed to a softer core inflation outcome of 3.1% YoY, down from 3.2%.

The disinflation in FNAB was driven primarily by further notable declines in Vegetable prices. Vegetable prices contracted by 3.0% MoM in October, marking a fourth consecutive monthly decline. Consequently, annual vegetable inflation moved sharply lower to -4.4% YoY from 1.2% in September.

Meat prices were broadly stable on a monthly basis, resulting in a modest easing in YoY meat inflation to 11.4% from 11.7%.

Cereal and bread prices remained subdued, rising only 2.0% YoY, supported by favourable global grain dynamics and a strong local maize harvest. While base effects may lift cereal inflation in the near term, the broader food inflation trajectory remains uncertain amid heightened volatility in vegetable pricing.

The upward pressure on headline inflation stemmed almost entirely from fuel prices. Fuel inflation rose to 3.3% YoY from -2.2% in September, ending more than a year of sustained annual fuel deflation.

However, this outcome largely reflects base effects rather than renewed price pressure, as fuel rose a negligible 0.1% MoM in October. Fuel-related inflation is expected to retreat in the next CPI print, given prevailing price declines at the pump.

Core pricing dynamics continue to reflect weak domestic demand conditions and a favourable import cost environment. Durable goods inflation contracted by 0.3% MoM and 0.9% YoY, driven by deeper price declines across electronics, household goods, and appliances.

Vehicle prices were flat MoM, moderating annual vehicle inflation to 1.2%.