South African Inflation at a Three-Year Low

While many African states, are battling the effects of high inflation rates, South Africa’s inflation rates just dropped to below 4% for the first time in over three-years. This is according to the latest Stats SA CPI inflation numbers for September, that were released this morning (23Oct).

Month-on Month comparison indicates a further drop in inflation from 4,4% in August 2024 after a drop in August from July 2024.

The main positive contributors to the 3,8% reduction in annual inflation rate were:

• housing and utilities contributing a 1,1 percentage points decrease
• miscellaneous goods and services contributing a 1,0 percentage point decrease
• food and non-alcoholic beverages contributing a 0,9 of a percentage point decrease
• alcoholic beverages and tobacco contributing a 0,3 of a percentage point decrease

September 2024 saw the annual inflation rate of goods at 3,3%, down from 4,4% in August 2024, and that of services, was 4,4%, down from 4,5% in August 2024.

The reduction in fuel prices in South Africa (SA), over the past three months, appears to be having a gradual impact on prices of goods, particularly on those of consumer item prices.

Good news for Consumers in Debt

The drop was significant enough and should ensure that there are further reductions in the interest rates by the Central bank over the next few months.

The central bank’s Monetary Policy Committee (MPC) is set to meet on 21 November, and market analysts are expecting a reduction of 25 basis points to be made, although some believe that with inflation now below the half-way mark of the inflation target range, there may be grounds for a 50 basis point or 0,5% reduction in the interest rate.

The MPC last month cut interest rates by 0,25%, in a small but meaningful step towards deflating interest in a heavily indebted society. Domestic Credit, according to data from CEIC Data, reached $315.6 US billion in Aug 2024, representing an increase of 7.8 % Year-on-Year, and sits at around 40,5% of SA’s total annual GDP, as of June 2024.

The latest numbers on consumer debt defaults is also encouraging and point to a gradual improvement in the economy, with the total number of civil summonses issued for debt decreasing by 14,5% in the three months ended August 2024 compared with the three months ended August 2023 according to Stats SA.

Businesses Faring better

The impact of lower inflation and reduced interest rates should see an improvement in trade revenues over the short term that will alongside the new two-pot retirement fund system in SA, see a boost in retail sale revenues and general business improvements

The number of business liquidations has seen a decreased of 4,3% (from 391 to 374) in the second quarter of 2024 compared with the second quarter of 2023. There was a decrease of 5,4% (from 802 to 759) in the number of liquidations recorded during the first six months of 2024 compared with the first six months of 2023.