Reading Time: 3 minutes

Inflation Figures Point To Coming Rate Cut

During October SA’s annual consumer price inflation dropped to 2.8%.

Consumer price inflation is a measure of how quickly the prices of goods and services go up in price over time. In theory, it could also be how much things become cheaper over time but…hey, let’s be realistic: Prices tend to go up and up over time. This is why it is more expensive to buy a house now than when your folks were your age.

The consumer price inflation is closely linked to the price of things we commonly buy at the shops like food.

In October this year the inflation figure was only 2.8% (which is lower than most experts expected – they thought it might be 3.1%). This is a big improvement from 3.8% in September and the lowest inflation rate seen since June 2020, during the height of the pandemic. This somewhat surprising figure now represents five straight months of inflation slowing down.

Why Is This Good?

Why this is significant is because it is one of the figures that the people at the Reserve Bank watch to see whether they can adjust interest rates on what people pay for credit.

Inflation is now much lower than the South African Reserve Bank’s much publicised target range of 3%-6%, which they feel is the ideal zone for stable economic growth.

This sharp drop makes it very likely that the Reserve Bank will definitely cut interest rates in its final meeting of the year.

Lower interest rates in turn mean cheaper borrowing costs for consumers. It means those who are paying off their existing debt will have to pay slightly less for that credit. The bigger the debts the more significant it becomes, of course. So, those with cars and bonds will feel it the most.

With a few more bucks in your pocket you may be able to treat yourself and head to the shop to spend money you would otherwise not have had. So that’s good for the economy overall.

Why Did Inflation Drop?

The main reason for this drop is a sharp decline in fuel prices.

Statistics South Africa reported that petrol and diesel were nearly 10% cheaper compared to the same time last year, with prices falling by more than 5% in just one month.

Food prices have also become more affordable, with average food inflation cooling to 3.6%. This is a relief for households, as food prices had been stuck between 4.5% and 4.7% for around half the year.

For context, food inflation hasn’t been this low since November 2019. Staples like maize meal became 2% cheaper in October alone, showing that some everyday costs are finally easing.

For consumers, these trends mean better affordability in critical areas like transportation and groceries, which are significant parts of most household budgets.

However, this doesn’t mean we can celebrate just yet. Inflation trends can change, and future conditions will depend on how the Reserve Bank manages the economy through monetary policy. There are also threats of oil price increases and the possible impact of Mr Donald Trump’s coming Presidency in the USA.

Still, after months of high living costs, this feels like good news.