What we can expect with the year drawing to a close

South African annual inflation quickened to a five-month high in October. The consumer price index rose 5.9%, compared to 5.4% in September, Statistics South Africa said on Wednesday in a statement on its website. Upward pressure came primarily from the prices of food and non-alcoholic beverages (+8.7%), namely vegetables (+23.6%) and milk, cheese, and eggs (+12.4%); transportation (+7.4%), namely fuels; health (+6.4%); and restaurants and hotels (+6.3%). Monthly, consumer prices increased by 0.9% in October, the steepest increase in three months, surpassing market forecasts of 0.5%.

Despite the higher-than-expected inflation numbers, South Africans do not have to deal with an interest rate hike ahead of the festive season, as the repo rate remains steady at 8.25%. Even with the 'hold' announcement, the South African Reserve Bank (SARB) still voiced a hawkish tone, with repo rate cuts only likely in the second quarter of the latter months of 2024. This is the third consecutive time that SARB has decided to keep rates steady, following an aggressive hiking cycle of a cumulative 475 basis points since late 2021, to fight off spiralling inflation.

In the US, minutes of the November 1st meeting of the Federal Open Market Committee (FOMC) showed that the US Federal Reserve may not need to hike further. Still, all the members of the FOMC agreed that rates would need to remain restrictive for some time and that they should proceed cautiously. Data arriving in coming months would help clarify the extent to which the disinflation process was progressing, the minutes indicated. After the release, markets marginally lowered the odds of a rate cut in May to about 60%.

It would seem that the tail-end of the inflation cycle is drawing close, with markets responding positively to the news and recording another week of gains.