Statistics South Africa (StatsSA) reported on October 19 that headlineinflation increased from 5.9% year-on-year (y-o-y) in August to 6.1% y-o-y in September.The latest y-o-y figure (calculating the change over a 12-month period) was below market expectations of 6.2% y-o-y. September’s number translated into an average inflation of 6% during 2016Q3 – in addition, this was lower than a figure of 6.2% recently forecast by the South African Reserve Bank (SARB).

KPMG Graph 19 October 2016


The benchmark food basket cost 0.1% m-o-m more in September. StatsSA recorded a 0.3% m-o-m increase in the price of processed foods as the ‘bread and cereals’ category cost on average 0.7% m-o-m more. This translated into this basket of staple food items costing 16.6% y-o-y more during the month. Overall,food cost on average 11.6% y-o-y more last month. On a positive note, the price of meat products was on average 0.5% m-o-m lower in September.

Based on the latest price data and recent comments from the National Agricultural Marketing Council (NAMC),it is quite possible that food price inflation peaked during the third quarter. According to the Food and Agricultural Organisation (FAO), wholesale maize prices have declined by 20% from record highs seen at the start of the year. Nonetheless, agriculture experts anticipate a 10%-15% increase in red meat prices towards year-end, as farmers reduce drought-forced slaughtering and start to rebuild their herds.

SARB Governor Lesetja Kganyago said in a speech on October 4, that the two percentage points increase in the prime lending rate since January 2014 have brought down inflation expectations. This has enabled the central bank to downwardly revise its inflation projections for 2017-2018, and signal thatthe SARB is close to the end of its interest rate hiking cycle. The SARB’s Monetary Policy Committee (MPC) will again meet on 22-24 November to discuss interest rates.