Consumer Inflation Up 5.0% y/y in September

  • Market Overview

Headline inflation was up 5.0% y/y in September, from 4.9% y/y in August, slightly below our expectation of 5.1%. Headline inflation increased by 0.2% m/m, explained entirely by core inflation (particularly services).

Core inflation increased by 3.2% y/y, from 3.1% y/y in August, and 0.3% m/m. Major contributions were from housing (which increased 0.6% m/m and 1.2% y/y, contributing 0.12ppt to the monthly pressure) and public transport (up 2.1% m/m and 6.7% y/y, adding 0.06ppt).

Fuel inflation continued accelerating from 15.2% y/y in July and 19.6% y/y in August to 19.9% y/y in September. The 4c per litre fuel price hike in September translated to 0.1% m/m fuel inflation.

Food and non-alcoholic beverages (NAB) inflation increased by 6.6% y/y, from 6.9% y/y previously, and had no monthly pressure. The subcategory that provided considerable upward pressure were sugar, sweets and desserts (up 1.7% m/m and 5.8% y/y, contributing 0.06ppt to the monthly pressure in food) but this was largely countered by meat (-0.2% m/m and 10.3% y/y, shaving off 0.08ppt from the monthly pressure in food).

While goods inflation lifted promptly following the improved mobility resulting from easier lockdown restrictions, services inflation is yet to normalise. Total goods inflation was up 7.1% y/y, with services higher by only 2.9% y/y. It is still important to note that total goods were lifted by volatile items such as food and fuel, while core goods remain below 4.5% and have decelerated since May.

Outlook

With today’s print informing our update, we project headline inflation at 4.9% in October and 4.5% on average for 2021. The current average is 4.2% with only one quarter of data missing, and it is mostly pressure from fuel that will lift headline inflation going forward. Petrol prices (95 unleaded) decreased by 1c per litre in October but with half a month of data, November fuel prices look set to increase by nearly R1 per litre, suggesting further upward pressure on fuel inflation. Core inflation should remain closer to 3%, with no major surveys until the next housing print in December. Food inflation should decelerate from current levels, ending the year closer to 4.5%.

Headline vs core CPI
Core CPI

Supply disruptions, energy shortages and elevated transportation costs remain major risks to our near-term inflation forecast. Vaccinations and higher mobility should also lift services inflation, but this could be limited by a slow improvement in the labour market and consumer confidence.

Survey outcomes to look out for in October are funeral expenses and insurance (2.16%).

Note: Stats SA will be applying new CPI weights with the January 2022 print. The new base period will be December 2021.

Total vs core goods
Housing

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