Annual consumer inflation eased to 7.4% in November, down from 7.6% the previous month.
This is according to data released by Statistics South Africa on Wednesday, which also showed that annual core inflation (which excludes food and fuel prices) was unchanged at 5%.
Economists suspect that inflation peaked in July, when it hit 7.8% year-on-year — marking the highest increase rate since 2009. It has since fallen, although very slowly, suggesting that inflation is sticky.
The South African Reserve Bank will probably remain hawkish amid stubborn inflation. As much was signalled last month when the monetary policy committee (MPC) announced a 75 basis point repo rate hike.
The MPC expects inflation to remain above the upper limit of its 3% to 6% target range until the second quarter of 2023. Inflation is expected to revert to the 4.5% midpoint of that range by the second quarter of 2024.
The Reserve Bank is expected to continue hiking rates, although at a slower pace, until it is confident inflation will return to the midpoint in its forecast horizon.
Meanwhile, the global monetary policy environment seems to be easing.
In the United States, November’s Federal Open Market Committee meeting minutes indicated greater support for a slowing in the pace of interest rate hikes. The minutes noted that monetary policy stateside is approaching a sufficiently restrictive stance and a substantial majority of participants judged that slowing the pace of increases would soon be appropriate.
Inflation numbers out of the US seem to support this view. According to data from the US Bureau of Labour Statistics, consumer inflation eased to 7.1% year-on-year in November, down from 7.7% in October. The print bucked analyst expectations, coming in weaker than forecast.
The US Federal Reserve will announce its interest rate decision on Wednesday.
Inflation has also started to ease in the United Kingdom, retreating from its 41-year high to 10.7% year-on-year in November. That inflation print also came in weaker than expected. Analysts were expecting inflation to slide to 10.9%, from 11.1% in October.
The Bank of England, which will announce its interest rate decision on Thursday, is expected to slow down the pace of tightening after having delivered its biggest rate increase in 33 years last month.
Softer inflation numbers, especially in the US, will support the rand, which has been hit by the tightening of monetary policy abroad. The MPC will be closely watching the local currency for signs of weakness, which is also an inflation threat.
This week the rand found support on a weaker dollar, after softer-than-expected US inflation data raised bets that the pace of Federal Reserve rate hikes will ease.
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