By Reza Hendrickse, Portfolio Manager at PPS Investments

As expected, Consumer price inflation accelerated further in October, to 5.9% year-on-year, compared to 5.4% in September. Inflation has steadily crept higher after the July trough of 4.7% and is now uncomfortably close to the upper limit of the SARB’s target range.

Food and non-alcoholic beverages, which make up 17.1% of the CPI basket, contributed 1.6% of overall year-on-year inflation. Consumers would attest to that, having experienced significant increases in certain food items, such as vegetables, sugar-related products, and dairy, which experienced the largest price increases. Housing and Utilities, which account for 24.5% of the basket were also significant contributors to inflation, adding 1.3%. The largest increases came from electricity and water, which rose 15.2% and 7.9% respectively.

Going forward, economists expect disinflation to resume from here and to return to the mid-point of the SARB’s target band by the end of next year. This mirrors the trend expected in the US, where inflation is also forecast to continue falling during 2024. For this reason, the market believes we have reached the peak in the interest rate cycle. The interest rate futures market currently suggests rates in SA will fall around 50bp by the end of next year. Reduced price pressure and lower debt funding costs would be well-received by consumers who are starting to feel the pinch.

Although the current high-interest rate environment is uncomfortable for borrowers, investors have been able to capitalise on the high yield available from low-risk asset classes such as cash. PPS Investments is currently overweight SA cash in multi-asset portfolios and is positioned to take advantage of the current interest rate climate.