Spotlight turns to CPI in data-dry week

Consumer inflation figures for September on Wednesday will be the highlight in a data-dry week ahead, but it should get a lot of attention, as soaring global energy costs and supply chain disruptions fuel concerns that price pressures will persist into 2022.

The market consensus is that inflation, as measured by the annual change in the consumer price index (CPI), will rise to 5% in September, from 4.9% in August, driven largely by stubbornly high fuel costs and food prices.

July’s inflation print marked the fourth successive month of inflation at the 4.5% midpoint of the Reserve Bank’s target band. BNP Paribas senior economist Jeff Schultz said a gradual uptick in inflation and growing risks supported the bank’s out-ofconsensus expectation that the Reserve Bank will hike interest rates by 25 basis points in November, even as the market bets on a rise in 2022.

Core inflation, which excludes food and fuel, should remain stable at 3.1% year on year, said Schultz. “We expect to see some modest evidence of underlying inflation pressures building, due to the loosening of Covid-19 lockdown restrictions and a closing of the output gap,” he said, referring to the gap between actual output and capacity. So far in 2021, the Brent crude oil price has risen almost two-thirds, though other commodities have risen as well, boosting SA’s growth prospects, and helping to support the rand, which has in part helped contain inflation expectations.

Surging energy costs and supply-chain disruptions are, however, a theme for global investors and the IMF last week trimmed the global growth outlook slightly to 5.9%, even as it raised its expectations for SA’s GDP growth by a percentage point to 5%.

The rapid spread of the Delta variant of Covid-19, and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome but the IMF also warned inflation risks are tilted to the upside, given a surge in global shipping costs and a backlog of ships at ports.

Investec economist Kamilla Kaplan expects inflation to rise to 5% in September, with food inflation expected to remain high, though rental inflation is expected to remain subdued.

Rental inflation is surveyed in September. “Indeed, this component of the CPI basket, making up a significant 16.8% has had a dampening effect on inflation readings, counteracting large fuel price increases and elevated food inflation as many individuals have opted to purchase homes, taking advantage of historically low interest rates and the workfrom home trend which has in turn weighed on rental demand,” said Kaplan.

BNP Paribas expects rental inflation to rise 1.1% year on year in September.