The index pointed to a 6.4% increase when August 2014 is compared with August 2013. This represents a 0.1% point increase on the corresponding annual increase recorded a month earlier and a 0.4% increase between July 2014 and August 2014.

SEIFSA Economist Tafadzwa Chibanguza said that while this was not a significant increase from the 6.3% recorded a month earlier, it was certainly significant when looked at in light of the consensus expectation of between 6.1% and 6.2%.

“Most expectations had been informed by the disinflationary trend we have observed over the past two readings, which we anticipated to continue, an easing of the brent crude price (which in August decreased about 4% in dollar terms), a relatively stable currency (averaged $1/R10.66 in August), the expected effects of the two interest rate hikes from earlier this year and poor growth in the South African economy,” said Mr Chibanguza.

The food and non-alcoholic beverages sub-component of the CPI was the only positive contributor to the annual increase, while the transport sub-index contributed a decrease to the overall index, with the other subcomponents remaining flat.

Given that international food prices have also been on an easing trend, the conclusion one reaches is that this increase in the food and non-alcoholic beverages component would stem from domestic retailers passing on administered price inflation such as electricity and transport costs, among others. 

The big question becomes; what the South African Reserve Bank (SARB) will do tomorrow (Thursday) with the rates decision, on the premise of this new data and the current environment. 

“We are still of the view that the Rand poses the biggest risk to inflation, and the recent spike to the $1/R10:95-$1/R11:00 does not bode well for inflation. Similarly, the interest rate guidance expected out of the United States tonight is expected to determine the direction the Rand will go,” Mr Chibanguza said. 

He added: “Should the US Federal Reserve rates be kept on hold for a while longer, the currency should maintain a relatively stable level therefore decreasing the probability of a move on rates by the SARB. The reverse of this scenario also holds true.” 

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