Highlights:

• Headline inflation lifted from 4.6% in July to 4.9% in August 2021 largely owing to fuel inflation, which rose to 19.6% year-on-year (y/y), after factoring in a 91c/l increase in 95 petrol (inland).
• The headline figure was broadly in line with the Reuters consensus forecast of 4.8% and had a limited effect on market moves.
• The monthly increase of 0.4% in the headline figure was primarily driven by transport costs.
• Core inflation nudged higher to 3.1% from 3% for the same period (broadly in line with the Reuters consensus), reflecting subdued domestic demand.
• Only three out of the 28 inflation categories experienced inflation in excess of 6% in August 2021.
• Higher food and fuel weightings in consumer inflation baskets in other emerging markets (EMs) have triggered higher rates of headline inflation and have prompted central banks, in these markets, to raise interest rates.
• In South Africa’s (SA) case, services constitute around half of the inflation basket and lower price pressures in this component of the basket have provided an anchor for headline inflation.
• In our view, benign inflation and longer-dated inflation expectations (which remain close to the midpoint of the target band), together with a narrowing output gap, could allow the SA Reserve Bank (SARB) to stave off interest rate hikes until the first quarter of 2022.

Headline