Inflation falls to a 14 year low
By Gerrit van Rooyen
Analyst at Oxford Economics.
Inflation eased to 2.5% y-o-y in November, the lowest rate since August 2005, from 3.1% y-o-y in the previous month, due to lower price inflation in most of the consumer price basket, according to the latest consumer price index (CPI) report.
Looking at the major sub-indices, the food and non-alcoholic beverages and the housing and utilities sub-indices were the biggest contributors (both contributing 0.5 ppt each) to the headline inflation rate. Softer bread, meat and sugar prices ate away at food price inflation. Meanwhile, annual declines in fuel, gas, and tobacco prices also had notable negative contributions to the headline inflation rate.
The headline inflation rate has declined steadily since November 2018, (when it reached a peak of 5.6% y-o-y), and averaged 3.8% y-o-y in the 11 month t end November 2019. Food and transport price inflation has fallen from a high base, while the recession plagued economy has exerted minimal demand side pressures on the CPI.
Furthermore, currency pressures have eased in line with looser global monetary policy in developed countries and expectations of reduced trade tensions. We forecast CPI inflation to tick slightly higher from 3.8% in 2019 to 4.0% in 2020, due to some upward pressure on food, fuel and other administered prices.
We currently expect that interest rate will remain unchanged for the foreseeable future. The continued risk of South African credit rating downgrades in 2020 will likely nudge the Sough African Reserve Bank towards conservatism, which would ordinarily discourage the Bank of Namibia from cutting interest rates.