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Inflation firmly under control again

Following a consistent and fairly sharp downward trend in the consumer price index (CPI) since the third quarter of 2023, the pace of retreat ebbed somewhat and then unfortunately picked up again in October last year.

As predicted in the 23 November edition of this column, inflation has now returned to a downward trajectory, both in terms of consumer prices and producer prices. The December reading of Statistics SA’s CPI data sees consumer inflation down to 5.1%, from 5.5% in November and 5.9% in October.

The producer price index, which invariably acts as a leading indicator for consumer prices, has set an even better tone, with the latest reading of 4.6% suggesting that inflationary trends will continue to moderate into 2024 – good news for consumers and the prospects for lower interest rates.

Closer scrutiny of the latest CPI data confirms the moderation of food price increases, which, next to electricity, have represented the main reason for the recent stubbornness in the CPI’s downward trend. Food and non-alcoholic beverages represent more than 17% of the CPI weighting and any meaningful change in their price trends inevitably impacts on the CPI.

According to the Agricultural Business Chamber (Agbiz), the prospects for further declines in food prices are good. A variety of interventions by the relevant agricultural communities and government have seen the risks associated with meat and poultry supplies diminishing in recent months.

Furthermore, fruit and vegetable prices, which remained elevated towards the end of 2023, are expected to decline in coming months because of the estimated increase in the volume of products that are currently in season at the country’s various Fresh Produce Markets.

Agbiz has also pointed out that, despite the current El Niño phenomenon, weather conditions across South Africa have been quite favourable for agriculture. Indications exist that farmers have planted all of the intended 4.5 million hectares of summer crops and good yields are expected in most regions.

Declining bond yield

Other good news for the millions of households with credit facilities (especially home-owners) is the welcome decline in South Africa’s long-term bond yield, which could be indicative of an imminent turning point for mortgage bond rates.

Since early October last year, the 10-year bond yield has shed more than 130 basis points – a clear indication that international capital markets are pricing in a lower interest rate scenario for South Africa in 2024. Hopefully, the Reserve Bank’s Monetary Policy Committee (MPC) will take its foot off the brake soon and provide some leeway for higher consumption expenditure.

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