SA inflation rises to four-month high, meets forecasts

Traders held interest rate bets.
SA Reserve Bank. Image: Moneyweb

Traders held bets that South Africa’s central bank will increase interest rates this year after inflation quickened to a four-month high in September.

Forward-rate agreements starting a month from now, used to speculate on borrowing costs, are now fully pricing in a 25 basis-point hike and a 64% chance of a 50-points increase at the next meeting of the bank’s monetary policy committee on November 18.

Data from the statistics office showed the annual inflation rate climbed to 5%, from 4.9% in August.

Image: Statistics SA

That matched the median estimate of 14 economists in a Bloomberg survey. Consumer prices advanced 4.8% in the third quarter, in line with the central bank’s forecast.

The five-year break-even rate – seen as a measure of bond traders’ expectations for price rises — remained unchanged.

Read: Inflation impact may be worse than the figures suggest

Main drivers
The main drivers of the price rises were food and non-alcoholic beverages, transport, housing and utilities, the statistics agency said. Core inflation, which excludes the prices of food, non-alcoholic drinks, fuel and electricity, remained benign, suggesting there is little demand pressure in an economy that’s slowly recovering from its deepest contraction in at least 27 years.

Economists’ views diverge from those of traders, with most expecting rates to remain at a record low of 3.5% until the first quarter of next year.

Gross domestic product is expected to have contracted in the three months through September, partly due to deadly riots and looting that erupted in July and derailed economic activity in two of the nine provinces.

Read: Pick n Pay loses almost R1bn in sales due to July unrest

The misalignment between market pricing and economists’ expectations illustrates the dilemma facing central banks.

Policy makers worldwide are debating whether faster inflation linked to pandemic-induced supply-chain disruptions is transient or something more persistent.

Read: Targeting higher inflation is the new panic in town

The South African Reserve Bank earlier this month said while the modest inflation trajectory underpinned the MPC’s decisions to keep the key rate on hold since July 2020, risks to the outlook “have risen and become more broad-based.”

The bank prefers to anchor inflation expectations close to the 4.5% midpoint of its target range.

Read:
Repo rate stays at 3.5% as expected
SA’s central bank model urges rate hikes

“These developments imply a need for interest rates to begin normalising,” the bank said in its six-monthly Monetary Policy Review.

The implied policy rate path of the central bank’s quarterly projection model, which the MPC uses as a guide, indicates a 25-basis point increase in the final quarter of 2021 and in every quarter of 2022 and 2023.

Listen: Dr Adrian Saville, investment specialist at Genera Capital, discussed when we are likely to start to see local interest rates increase, on MoneywebNOW (read the transcript here)

© 2021 Bloomberg L.P.

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Stagflation…

Exactly! Low growth, high inflation, higher unemployment, higher crime, population growth so GDP per capita falling rapidly and tax revenue dropping….failed State!

FLEE if you can!

Food, fuel, electricity is up by far more than 5%. This will have a cascading effect on products and services. I know they say it is excluded from Core Inflation (as stated in the article) but ja, I always see this 5% figure and think, “what are these people buying?”

Also, most people’s salaries have either A) stayed the same, B) been reduced or C) they have lost their jobs completely. We are in for a world of hurt ahead…

I hope people start to vote smarter in the coming Local Municipal Elections.

great summary! Can I just add: D) it is not going to get better and E) it is going to get even worse.

Suuure! Pull my other finger and tell me another lie about inflation.

5% is an utter lie.

As the AA said just a couple of days ago…

“The current picture is showing petrol up by 99 cents a litre, and diesel and illuminating paraffin higher by a whopping R1.42 a litre. This will push 95 ULP inland above R19/l (close to R19.30/l), and R17/l for diesel,” the AA said.

“Taking this potential increase into account, the price of a litre of fuel inland (95 ULP) will have increased from R14.86/l in January to R19.30/l in November – a 30% increase over 11 months.”

Will someone from StatsSA please tell me how that 30% increase in fuel does not affect almost every single thing on the shelves that people buy, not to mention the fuel people put in their own cars or that goes into the taxi’s and buses.

it is not the petrol/diesel price hike per se , but like you say the “domino” effect. I just don’t know how some people can still survive in this failed state?

Sadly many don’t – I’m sure there are hundreds of thousands of our poorest and most vulnerable fellow South Africans literally starving. Ironically their vote will always be for the ANC, even if they use their last kilojoule to get to the polling station.

I’m thinking that there will be a substantial increase in demand for microloans and finance over the coming years – this is how many will survive – caught in a perpetual cycle of debt.

If you’re speculator, I would think that given Microlenders will most likely benefit due to the likelihood of increased loan volumes and considering the profile of the microlending customer (majority require bridging finance to meet day to day needs) default rates may be low. The increased loan volumes and the resultant interest income would most likely offset any bad debts substantially.

Likely sitting pretty of you’re in this industry

Our compatriot from the EFF thinks it will be a good idea to “nationalize” the Reserve Bank. Truth is, the Reserve Bank is a national institution with token private shareholders. The EFF wants to “nationalize” an institution that has been nationalized already. The president appoints the governor, and although the Reserve Bank is supposed to act “independently”, populist errors always spill over to the banking system, forcing the hand of the Reserve Bank.

We know that the EFF wants to reach economic freedom by taking control of the printing presses. Money printing does not create economic prosperity though. Emmerson Mnangagwa en Nicolas Maduro tried this and dumped their nations in poverty and hunger.

In their search for economic freedom, the EFF should stick with the hammer and sickle because the printing press is a very complicated and sophisticated piece of machinery that requires a level of understanding of monetary matters that is far beyond what they have been blessed with.

The printing press tends to overrev when socialists fill it up with red fuel. Wearing a red beret does not qualify you to operate that piece of machinery. Putting a socialist in control of a printing press is a recipe for disaster.

Yes.

Interesting.

The printing press was a success because there was a great demand for books as the world moved out of the dark ages. Technology of the time.

Books are not in great demand anymore and the printing presses are much quieter due to technology. The internet.

What would silence the money printing presses? Technology? Crypto maybe?

The EFF might be chasing their tails here. Hahaa. Not uncommon.

Precisely Sensei. The EFF will just follow the Zimbabwean or Venezuelan examples….hyper-inflation. Which leads to more misery & empty stores / a country unable to pay fro imports, etc.

At Mmmm. Good points re technology replacing the printing press. Remember that more than 90% of the world money/capital is already ‘digitised’ with little hard cash going around. Even if one ignore crypto, most Fiat money is digital in any case. Like your pension investments, unit trusts, share accounts, credit card debt, bond debt….all numbers on a database servers, which we humans can view on a screen or app.

We don’t need the EFF to sc**w things up! The current lot are doing very well , thank you.

End of comments.

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