The data, unveiled on Wednesday by Statistics South Africa, show that, at 5%, the consumer price index (CPI) is still comfortably inside the South African Reserve Bank’s (SARB) 3% to 6% target rate. And the SARB does not tend to react to past inflation – its focus is on expectations going forward. Its Monetary Policy Committee (MPC) will be meeting next month to deliberate on rates, which it has held steady all year at historic lows after slashing them by 300 basis points in 2020. 

“If the MPC opts to raise the repo rate by 25 basis points… it probably would be motivated on the basis that sharply higher food and petrol prices have increased the risk of a notable deterioration in market (as well as survey-based) measures of inflation expectations in the period ahead,” RMB chief economist Ettienne le Roux said in a note on the data. 

Food inflation was one of the drivers of the September print but it slowed to 7.0% from 7.4% in August and on a month-on-month basis was a deflationary -0.1%. This fits with expectations that food inflation had reached its peak as South Africa’s bumper maize crop comes to market. Meat inflation remains elevated at 10.3% as producers pass on higher input costs to consumers.

Fuel prices were the main accelerant – they were almost 20% higher in September this year than the same month in 2020 – and the SARB will be mindful of the trajectory of crude prices and the outlook for the rand exchange rate, the two main factors that determine the domestic retail petrol price at the pumps.

Still, price pressures remain muted and if food, fuel and electricity costs are stripped from the equation, the rate is only 3.2%. 

“Subdued underlying inflation perhaps isn’t that surprising; for years now, the economy has been growing below its estimated potential growth rate. Consequently, except for a few sectors running at a decent tilt, the extent of slack available elsewhere in the economy could well be larger than commonly assumed,” Le Roux noted. 

This is, after all, an economy with an unemployment rate of an eye-watering 34.4% – one would hardly expect significant demand to be generated when one in three economically active adults has no job and far fewer have disposable income. If inflation was to take off in such a setting, South Africa would be caught in the vice of stagflation, which has become a concern elsewhere. Stagflation haunted the global economic landscape in the 1970s and the challenges that have emerged from the pandemic have raised its spectre again. It signals high inflation and high unemployment in an economy that is struggling to grow or is even contracting. In short, a stagnant economy. 

“Worldwide Google searches for the term stagflation are at the highest level in a decade. Bloomberg reported that its news service has published a record number of articles on the topic. There is clearly a worry that current elevated inflation will persist and coincide with global economic stagnation,” Old Mutual wealth investment strategists Izak Odendaal and Dave Mohr said in a note. 

But they point out that things are not so foul. The factors driving global inflation are mostly temporary, including supply bottlenecks and looming shortages of items such as turkeys, which are prominent on the US menu during the Thanksgiving and Christmas holidays. And global economic growth forecasts are hardly stagnant.

For South Africa, inflation is not a major worry at the moment, and the SARB will no doubt act decisively to nip it in the bud. In fact, a bit more inflation might suggest an economy that is finally getting traction in the face of load shedding, policy uncertainty, state failure and growing insecurity. South Africa has bigger worries than inflation, or stagflation, at the moment. DM/BM