SA CPI inflation slowed in line with market expectations in September, extending the trend of disinflation to seven straight months and adding to the case for further SARB interest rate cuts. Headline inflation eased to +3.8% y/y from +4.4% y/y, which marked the lowest reading since March 2021. Core inflation, meanwhile, remained unchanged at 4.1% y/y. As was the case over the previous three months, slower fuel inflation was the key driver of September’s lower CPI reading. Looking ahead, fuel prices declined further in October. All else equal, this should drive a lower CPI reading that month. However, the decline in fuel inflation will likely bottom out after that, in turn contributing towards the same trend in headline inflation.
Notwithstanding September’s welcome CPI print, compressing Fed rate cut expectations and ZAR depreciation reduce the scope for an outsized 50bp rate cut in November. The SARB’s move next month will likely be a 25bp cut, especially given Governor Kganyago’s push for a lower inflation target. However, with the risk of CPI bottoming out above the typical inflation targets in advanced economies of 2%, SARB Governor Lesetja Kganyago may find it challenging to justify lowering the 3%-6% inflation target that has guided policymakers for the last 24 years to anything less than 3%.