Consumer inflation could continue to increase in the coming months on the back of a three-and-half year peak in PPI, as the pass-through effect of higher PPI numbers filters to consumer prices. Standard Bank expects CPIX to peak at 5.8% y/y in February next year. However, there are signs that some components of CPIX could be capturing the lagged effect of the previous increases in interest rates.

The market is pricing in more than 50 bps for a hike in two months, while penciling in more than 100 bps from the 4x7 area of the FRA curve. This represent a significant deterioration in the outlook for interest rates from what the market expected two-weeks ago. The FRAs could drift higher on the back of a weaker rand in next two-weeks (due to the expected widening of the current account deficit).