Standard Bank Research Team
Standard Bank
Core moderates to 5.6%y/y
Headline CPI inflation remained flat month-on-month resulting in a slowdown in annualised CPI from 6.4%y/y to 5.9%y/y. The moderation was greater than Bloomberg’s consensus estimate of 6.1%y/y and our forecast of 6.0%y/y.
Core inflation (ex food & NAB, petrol and energy) fell from 5.8%y/y to 5.6%y.y. The direct effect of the currency on CPI via petrol, clothing and vehicle prices moderated in September (fig 2) and as can be seen in figure 9, and second round currency effects, which feed into inflation with a 6 – 9 month lag have remained muted. Second round effects of the weak rand will remain a risk to core inflation for another 3-5 months but are expected to moderate thereafter, due to global disinflation and more positive USDZAR base effects (fig 10).
Goods inflation fell from 6.8%y/y to 5.8%y/y, while CPI for services rose from 6.0% to 6.1%, adding 0.03ppts more to inflation than it did last month. As expected, the moderation in goods inflation was primarily due to food and petrol. The inflation rates of all three categories of goods slowed; despite the weak currency import intensive durable and semi-durable goods inflation fell from 4.5% to 3.8%y/y, and 5.2% to 4.9%y/y respectively (fig 1). Non-durable inflation fell from 7.4% to 6.3%y/y due to both petrol and food inflation.
Petrol inflation fell from 5.8%y/y to 1.1%y/y in September, shaving 0.27ppts off August’s headline CPI inflation rate of 6.4%y/y. looking ahead, petrol prices rose 2c/litre in October, raising the petrol inflation rate to 2.7%y/y, which will add 0.09ppts to October’s inflation rate. If we assume Brent averages $90bpp in October, the petrol price could deflate by 0.65%y/y, shaving 0.04ppts off November’s headline CPI inflation rate.
Food inflation fell from 9.5%y/y to 8.7%y/y shaving 0.11ppts off August’s headline CPI. The slowdown in food was relatively broad based (fig 7) but bread & cereals fell most, from 7.7%y/y to 5.9%y/y, followed by meat, which finally succumbed to lower maize prices and fell from 10.1% to 9.4%y/y.
Looking ahead food inflation is expected to remain elevated in Q4:14, before moderating from December onwards (fig 3).We anticipate meat inflation will continue to slow, although according to the abattoirs stickiness in meat inflation is the result of farmers taking advantage of the low maize price and reducing the supply of meat to gain control over meat prices. As can be seen in figure 5 wheat takes about 9 months to feed into the bread and cereals component of CPI and consequently the increases in the wheat price experienced in Q1:14 may cause bread and cereals inflation to rise again in Q4:14 and Q1:15.
Possibly due to the weak Rand and increased tourism, restaurant and hotel inflation rose from 8.5%y/y to 8.8%y/y; Tobacco accelerated from 7.6%y/y to 7.9%y/y.
The FX team has revised their outlook for the USDZAR exchange rate, which is now expected to average 11.60 in 2015, instead of 10.66 (fig 11). Consequently we expect CPI to average 5.5% in 2015, up from our original forecast of 5.2%y/y.
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