Cosatu this week welcomed the sharp drop in consumer price inflation (CPI) as it plummeted from 4.4% to 3.8%—a much-needed development for millions of workers grappling with rising living costs.
This significant drop, the lowest inflation rate recorded since March 2021, provides a glimmer of hope for South African consumers trying to recover from financial hardships inflicted by the persistent economic strains of recent years after Covid-19, high inflation and high unemployment.
Cosatu urged the South African Reserve Bank (SARB) to act decisively by reducing the repo rate in its upcoming Monetary Policy Meeting.
Last month, the MPC cut interest rates by 25 basis points, the first rate cut in four years, bringing down the repurchase rate to 8% per annum and the prime lending rate to 11.5% per annum as headline inflation fell below the SARB’s midpoint of the 3-6% target range.
Cosatu said, “Whilst appreciating this badly needed relief to the working class and the economy, we urge the South African Reserve Bank (SARB) to move with speed to reduce the repo rate and give further critical assistance to workers who are drowning in debt and have been overwhelmed by the painful increases in the cost of living over the past two years. We trust that the SARB will provide at least a 50 basis point cut in its next Monetary Policy Meeting due in a few weeks.”
Economists agree that the CPI data points to another rate cut being on the cards.
Frank Blackmore, the lead economist at KPMG, said the main reason for the inflation decline “would allow the SARB to reduce rates further at their November meeting, potentially by 50 basis points, even though a 25 basis points remains more likely, continuing their steady reduction cycle into 2025 to a level of around 7% (prime at 10.5%)”.
Dr Elna Moolman, Standard Bank Group head of South Africa macroeconomic research, said a significant decline in consumer inflation in September was widely expected and provided significant relief to consumers.
This provided scope for the SARB to cut interest rates further and provide additional relief to the economy
The latest inflation data reveals a complex landscape, particularly in food inflation, which, despite the overall CPI decrease, remains a mixed bag. Monthly inflation holds steady at 0.1%, with food inflation surprisingly paused at 4.1% year on year.
This marks the lowest it has been in over four years, and although some categories like fruit and vegetables have recorded significant price increases, staples such as bread and cereals are showing a downturn in inflation rates.
Grain SA economist Marguerite Pienaar highlights this dichotomy, stating that while essentials such as milk and eggs have maintained stable prices, other categories, notably vegetables and fruits, have surged.
With food inflation widely attributed to the declines in yields from extreme weather and droughts earlier in the year, consumers face uncertainty as the market grapples with rising costs and fluctuating supplies.
Despite these challenges, the financial outlook may shift as improved weather forecasts predict better yields in the upcoming seasons alongside a global surplus in grain supply poised to exert downward pressure on prices.
Agricultural economist Daneel Rossouw is cautiously optimistic of food price inflation moderating.
Rossouw, the head of sales for agriculture at Nedbank Commercial Banking, underscored a broader trend as food price inflation has been on a declining trajectory over the past two years, with current levels significantly lower than those observed in 2022/23.
Despite CPI falling, households are still under strain. The Household Affordability Index, released revealed a notable spike in October 2024, with the average food basket now costing R5348.65 with food baskets increasing by R92.97. This illustrates the ongoing pressures faced by families amidst increasing food prices and stagnant wages.
The Child Support Grant of R530 is now 33% below the Food Poverty Line of R796, indicating a deepening crisis, the Household Affordability Index compiled by the Pietermaritzburg Economic Justice and Dignity noted.
"As South Africans approach the festive season, the need for comprehensive action to address food pricing and wage inequalities has never been more urgent. Consumers remain hopeful for transparency and fairness in pricing, as they navigate the stormy seas of rising living costs,“ the report said.
- Additional reporting BR reporters
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