Inflation falls to 2.8% as fuel prices plummet

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Mark Phillips, head of portfolio management and analytics at PPS Investments, shares insights into what this slowdown means for the economy and investors, shedding light on the factors driving this unexpected dip in inflation:

The CPI decreased by 0.1% month-on-month in October 2024.

October’s print is the lowest since June 2020 (during the Covid-19 pandemic) when the rate was 2.2%.

Falling fuel prices remain the primary factor behind the slowdown. Petrol and diesel prices declined by 5.3% between September and October, taking the annual rate for fuel to -19.1%.

After remaining steady in the 4.5%-4.7% range, annual inflation for food and non-alcoholic beverages retreated to 3.6% in October. This is the lowest rate since November 2019.

The main positive contributors to the annual inflation rate were housing and utilities (accounting for a quarter of the CPI basket) and miscellaneous goods and services (14.8% of the CPI basket) which contributed 1.1% and 1.0% respectively.

Transport (14.4% of the CPI basket) was the only negative contributor, contributing -0.8% to the annual inflation rate.

The slowdown to below the lower end of the central bank’s 3%-6% inflation target range will likely persuade the Monetary Policy Committee (MPC) to ease monetary policy. The move in the annual inflation rate provides a supportive environment for the Reserve Bank to continue cutting interest rates.

The expectation is for the MPC to cut the policy rate by a quarter-point to 7.75%, cognisant of the global economic uncertainties and potential shifts in US policy.