Pretoria – The annual Consumer Price Index (CPI) eased to 5.9% in August 2016, Statistics South Africa (Stats SA) announced on Wednesday.

“Headline inflation decreased to 5.9% for August 2016. That is 0.1% down on the 6% recorded in July,” said Joe de Beer Deputy Director General at Stats SA.

Contributors to the annual change of 5.9% in CPI were food and non-alcoholic beverages at 1.7%, housing and utilities at 1.4% and miscellaneous goods and services at 1.1%, among others.

Food and non-alcoholic beverages contributed to the monthly change of 0.1% as did transport recording a -0.3%.

“When looking at food month-on-month we saw that vegetables and meat declined in terms of their prices but there were increases in oils and fats, bread and cereals as well as sugar, sweets and desserts,” noted de Beer.

The decrease in headline inflation was in line with market expectation including that of Nedbank economists.

“We expect inflation to increase to marginally above 6% in the next few months as earlier rand weakness works itself through the numbers. Consumer inflation is expected to end the year at 6% and average 6.2% in 2016 as a whole,” said Nedbank economists.

Going into 2017, the bank expects consumer prices to soften going into 2017 as food prices cool somewhat on the back of a good winter crop season and the possibility of a La Nina weather pattern which is forecast to bring normal rainfall levels in 2017.

“The biggest threat to the inflation outlook is still the currency and a weak rand will limit the decrease in prices in 2017,” noted the economists.

Nedbank said the softer inflation profile and the recent strengthening of the rand gives the Reserve Bank room to leave rates temporarily unchanged.

“The big concern for the central bank still remains the rand. We believe that the current strength in the currency is temporary and that the rand will weaken as the year progresses. We believe that the Reserve Bank will take a wait and see approach tomorrow when they announce their rate decision, but we are not completely ruling out a 25 basis point rate hike early in the new year,” said the economists.

The central bank’s Monetary Policy Committee (MPC) will announce its decision with regards to the repo rate tomorrow afternoon.

CPI basket and weight

Meanwhile, Stats SA announced on Wednesday that it will make changes to the CPI basket of goods and services and the weights attached to these. This would take effect from the January 2017 release of CPI.

It is international practice that reweighing takes place at least every five years to ensure relevance to the changing consumption trends.

South Africa’s last reweighing exercise was in January 2013.

The basket of products whose prices in which inflation figures are calculated is based on the spending of South African households over a particular year with the primary source of this data being Living Conditions Survey (LCS). –