Annual inflation has slowed to 5.2% y/y in October, following a rise in prices of 5.6% y/y in September. Slower increases in the prices of food and non-alcoholic beverages, in addition to contracting prices for clothing and footwear contributed towards annual inflation rising at a slower rate in October. On a year on year basis, prices in three of the twelve basket categories rose at a quicker rate in October than in September, with six categories recorded lower rates of inflation, while the rate of inflation in three categories remained unchanged. Prices for goods rose by 3.1% y/y while prices for services increased by 8.0% y/y.
Housing and utilities, the largest contributor to annual inflation by weighting, recorded an increase in inflation of 8.6% y/y and a decline 0.1% m/m in October. The electricity and other fuels subcategory recorded an increase in prices of 4.1% y/y, which is a slower rate of increase compared to 6.0% registered the previous month. On a m/m basis prices in this subcategory contracted by 0.4%. Consumers were spared a fuel price increase during October and we expect prices to come under pressure following a fuel pump price increase in November and December at 40 cents and 50 cents respectively.
Food and non-alcoholic beverages contributed about 17% towards annual inflation. One of the major reasons for the slowdown in inflation this year has been the continued moderation in food inflation. Prices in this category rose by 3.7% y/y, lower than the 4.2% recorded in September. Prices for bread and cereals contracted by 2.7% y/y while prices for fish and meat rose by 15.2% and 9.2% respectively.
Alcoholic beverages and tobacco, the third largest category, saw prices increase 5.7% y/y compared to an increase of 6.0% in October of 2016. Prices of alcoholic beverages rose 5.5% y/y while tobacco prices accelerated by 6.4% y/y. Transport prices rose by 4.4% y/y and 0.6% m/m. Prices related to the purchases of vehicles rose by 6.5% y/y in October compared to 3.9% y/y increase in September.
South African inflation rose 4.8% in October following a 5.1% increase in September. The SARB kept its benchmark rate unchanged at 6.75%, having cut rates for the first time in five years in July this year. Escalating uncertainties in the economy as well as potential upside risks to inflation were cited as reasons to the latest decision to keep rates unchanged. Though annual inflation remains within the SARB’s target band, concerns remain that the rand was sensitive to political developments and weak economic growth prospects. The ratings downgrade of South Africa’s local currency to “junk” from S&P Global Ratings sent the rand tumbling. This was however offset by Moody’s decision to place South Africa on review. A ratings downgrade from Moody’s will effectively push South Africa out of major global bond indices, resulting into large capital outflows that will have significant bearing on inflation. Namibia’s foreign currency rating was recently cut to “junk” by Fitch ratings on the back of a mid-year budget review that was tainted by expenditure over-runs, disappointing revenues and escalating debt to GDP levels. Future debt issuance will most likely become more expensive as a result, especially in international capital markets. Though inflation has been