South Africa’s consumer inflation flat in October, while retail sales have dismal third quarter

South Africa’s October consumer inflation, at an unchanged 5%, was considerably less than the 6.2% recorded in the US for the month. The latter reading, the fastest pace of US inflation in more than three decades, has triggered global inflation alarms.  

As the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) prepares to render its next interest rate decision on Thursday, it is the US inflation number that might carry more weight. Rising expectations that the Federal Reserve will increase rates sooner rather than later will pressure emerging market central banks to follow suit. In layperson’s terms, the greenback gets a boost from investors seeking yield on bonds and interest rate-linked assets when its rates go north.  

The domestic inflation number will also give the SARB something to think about.  

“Inflation should be higher in November, with fuel inflation providing significant upward pressure after the R1.21 per litre price hike. Using today’s print to inform our update, we project headline inflation at 5.5% in November and still 4.5% on average for 2021,” said FNB economist Koketso Mano.  



“Fuel price inflation remains a great source of near-term risk, with some analysts predicting prices breaching the R20 per litre mark by year-end given a weaker rand and elevated Brent crude oil prices,” Mano added. 

The SARB’s take on inflation is forward-looking and that fuel price pressures in the pipeline will be of concern as it aims to keep CPI within its 3-6% target range. 

Food inflation braked in October to 6.7% from 7% in September, which is a good sign. But Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa, told Business Maverick grain and meat prices remained elevated for longer than expected this year, so average food inflation is likely to exceed previous expectations of 5.5%, perhaps coming in at around 6.5%.  

Still, price pressures in South Africa are hardly overheating. If food, fuel and energy are removed from the mix, inflation in October — as in September — remained a moderate 3.2%. 

Demand pressures present a mixed picture. Retail trade sales rose year-on-year by 2.1% in September, Stats SA said in another data release on Wednesday. But compared with the previous month, the increase was a robust 5.1% — perhaps as part of a rebound from the dreadful month that was July, when retail trade sales sank by 11.2% month on month, largely because so many retail outlets were looted and burnt that month.  

But overall, seasonally adjusted retail trade sales declined by 5.4% in Q3 compared to Q2. This is the latest indicator that the economy probably contracted in the quarter, which will also weigh on the MPC’s decision. 

It will certainly be interesting to see the SARB’s updated forecast for 2021 economic growth after the Treasury’s latest estimate of 5.1%. With the frequency of load shedding this quarter, this economy still faces a plethora of challenges. DM/BM

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