Cost-of-living crisis as CPI races to 5.9%, ahead of rate decision

South Africa remains in the grip of a cost-of-living crisis, with food prices once again accelerating and driving the overall Consumer Price Index (CPI) number higher.  

The CPI sped up to 5.9% in October from 5.4% in September, Statistics South Africa (Stats SA) said on Wednesday. This exceeded the Bloomberg consensus forecast of 5.6%, with food inflation a key driver.  

This will not be lost on the Monetary Policy Committee (MPC) of the South African Reserve Bank when it renders its next verdict on interest rates on Thursday. The MPC is widely expected to keep the repo rate steady at 8.25% and prime at 11.75%, which would be its third consecutive hold after 18 months of hikes that raised lending rates by 475 basis points. 

Read more in Daily Maverick: SA Reserve Bank expected to hold rates steady as rand provides some respite 





The SA Reserve Bank is typically not swayed by one data set and has its eye firmly on future inflation expectations. Still, it will be concerned by CPI’s upward moves since July when it reached its 2023 low of 4.7%, near the midpoint of the central bank’s 3% to 6% target range. And the rise since July is not just one data set, but three months on the trot of quickening inflation which has brought CPI back up to the top of the range. 

The rand is also not playing ball this week, yielding most of its gains over the past 10 days or so that brought it to its highest levels in almost four months. It sank back to 18.70/dlr on Wednesday as Transnet’s worsening woes have refocused market attention on the economy’s many structural challenges.  

This could herald a surprise hike of 25 basis points — the SA Reserve Bank’s focus on inflation is relentless — or a hold with an ultrahawkish MPC statement that pours cold water on expectations of rate cuts from the second quarter of next year.  

Core inflation, which strips out food and fuel costs, nudged down to 4.4% in October from 4.5% in September, and that will be taken as a sign of overall moderation.  

But food inflation is picking up steam again, and that will be a worry. Food inflation hit 8.8% in October from 8.0% in September. Egg prices, for example, are going through the roof because of the avian flu outbreaks.

Read more in Daily Maverick: Egg prices spike more than 13% in October as avian flu scrambles supplies

Read more in Daily Maverick: Poultry producers bear crippling cost of avian flu as government accused of dragging its feet

Rising transport costs are also a concern. 

“Transport inflation quickened to 7.4% from 4.2% in September. The rise was mainly due to a 6.5% monthly increase in the fuel price, taking the annual rate to 11.2% from 1.5% in September,” said Stats SA.  

It all adds up to a mounting cost-of-living crisis that is taking its hardest toll on poor households while squeezing the middle class. 

It is of more than passing interest to note the areas where inflation is braking. 

“Vehicle inflation, which includes prices of new and used motor cars, eased to 7.8% from 8.4% in September,” Stats SA said.  

Business confidence among new vehicle dealers has collapsed to its lowest levels since the second quarter of 2020, when Covid-19 restrictions and lockdowns were in their toughest phase and the economy was imploding. 

Read more in Daily Maverick: New vehicle dealer sentiment hits the skids, a sign of the road ahead for SA’s economy 

One upshot of this would seem to be that dealers are cutting prices to entice customers. That points to the strain on middle-class households in these tough times, and things will only get tougher if interest rates climb from current levels to contain inflation in an economy that is barely growing. DM