The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL
The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL

INFLATION rose slightly more than expected for the second consecutive month last month, reducing the Reserve Bank’s ability to cut interest rates to spur economic activity amid a slowing growth environment.

The weaker rand and a deteriorating current account deficit are also weighing on the Bank’s ability to move rates lower.

Statistics South Africa figures released on Wednesday showed that prices rose 0.6% on average between September and last month, mainly on elevated food and transport costs. The inflation rate was at 5.6% last month.

With fiscal policy already stretched, some sectors are pinning hopes on monetary policy easing to get economic activity going.

However, the higher inflation means the Bank’s monetary policy committee is likely to keep rates on hold and revise most of its forecasts. The Bank’s committee has been meeting since Tuesday and will announce its interest rate decision this afternoon.

"We are looking for them (the committee ) to lower their growth forecasts for next year. We also think they will increase their inflation forecasts," Standard Bank economist Shireen Darmalingam said.

Standard forecasts rates to remain on hold next year, with the possibility of a cut if growth should weaken more than anticipated.

Food prices contributed the most to the monthly rise in inflation, with the food index recording an increase of 2.8%, its highest monthly jump since August 1994.

"As long as food price growth is positive, the shelf price of food is rising … the price of the food basket rose 2.8% month on month in October, which means that the shelf price for that same basket of products is now 2.8% more than a month ago," ETM Analytics economist Jana le Roux said.

The effect of higher food prices is not yet over, given that global food prices have moved higher in recent months and could lead to further upward pressure in domestic food inflation into the year-end.

Some relief might come next year when new weights for the consumer price index basket become effective. Food has been allocated a slightly lower weight.