QUICK READ Higher inflation and interest rates, more pain

THE South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) met for the last time this year to decide on the repurchase agreement rate (repo rate) in the country. On Thursday, Lesetja Kganyago, South Africa's central bank governor, announced the latest decision. Keeping with SARB’s trend all year, Kganyago announced that the repo rate would increase by 75 basis points, taking the repo rate in the country from 6.25% to 7%. This means that the prime lending rate in the country will increase from 9.75% to 10.50%. Before the governor’s announcement, a consortium of 18 out of 20 economists and academics from Finder.com suggested that the SARB would most likely increase the interest rate. According to Finder, more than half of their experts, when polled, expected the SARB to hike rates by 75 basis points.

“While this interest rate hike will have a dampening effect on the residential property market and places further strain on consumers, the silver lining is that it appears that progress is being made in containing inflation both locally and globally,” says Rhys Dyer, CEO of ooba Group. “It also narrows the chances of significant rate increases in 2023.”

Consumer inflation

The main factor in the MPC’s decision to raise interest rates is rising inflation. This week StatsSA reported that Consumer Price Index inflation was 7.6% year-on-year in October, up from 7.5% in September. Koketso Mano, FNB senior economist says: “This was slightly above our prediction of 7.5% and the consensus expectation of 7.4%.” Core inflation increased to 5.0% y/y, from 4.7%, driven by the increase in insurance costs (up 4.5% y/y), vehicles (6.1% y/y) and restaurants and hotels (7.8% y/y). As expected, the normalisation in services inflation continues, adding to core goods price pressures, Mano says Fuel inflation was down by 2.7% from September, following the over R1 per litre cut to petrol prices in October. Nevertheless, fuel prices are 30.1% higher than a year ago. Food and non-alcoholic beverage prices continue to accelerate, posting 12.0% y/y. Meat contributed the most to the monthly pressure. All other items added to monthly food inflation except food oils and vegetables.