Our weekly podcast by Kevin Lings

Good news on US and SA inflation trends

In this podcast, STANLIB’s Chief Economist, Kevin Lings, looks at US September CPI, which went up less than expected, to 3% from 2.9%. He analyses why it is showing only a modest impact from tariffs, and how it will influence US interest rates. In SA, September CPI went up to 3.4% from 3.3%, but Kevin expects it will move higher in coming months. To listen to the podcast, click here.

The focus areas during the week included

• The S&P 500 index rose by 1.9% and ended the week at another record high. Year-to-date it is up 15.5%. Since the low on 8 April 2025, the US equity market has gained 36.3%. The latest weekly uplift in US equities occurred despite an increase in the oil price after the Trump administration announced sanctions against Russia’s two largest oil companies. The market welcomed US inflation data for September (released on Friday), which appears to have assured a further interest rate cut of 25 bps on Wednesday 29 October. There is also a huge focus (and nervousness) about upcoming trade negotiations between the US and China on 30 October.

• Japan’s stock markets rose sharply, with the Nikkei 225 Index gaining 3.6% and the broader TOPIX Index up 3.1%. Markets welcomed the election of the Liberal Democratic Party’s (LDP) Sanae Takaichi as Japan’s prime minister, as her focus on the economy and proactive fiscal policy are likely to be positive for equity markets. Given that the LDP formed a coalition with the Japan Innovation Party (JIP), Takaichi’s government can be expected to be relatively stable. Although the LDP-JIP coalition is slightly short of a majority in both the Lower and Upper Houses, it can obtain support on a bill-by-bill basis from small, neutral opposition parties.

• Although the STOXX Europe 600 index ended the week up 1.7%, SA’s All-Share Index declined by 0.3%, hurt by a fall-off in the Resource and the Financials indices. Despite the weekly decline in SA equities, the JSE is still up a very impressive 31.3% year-to-date, mostly due to the Resource 10 Index.

• The US bond market fluctuated throughout the week, with yields trending lower in the first half of the week (the yield on the US 10-year government bond fell to 3.97% on Wednesday) before drifting higher ahead of the release of monthly inflation data on Friday. The net result was that the yield on the 10-year ended the week unchanged at 4.02%.

• In the year to date, the rand has gained an impressive 9% against the US dollar, helping it to marginally outperform its emerging market peers (up 7.8% in aggregate). This appears to be due to positive SA-specific effects, including SA’s favourable terms of trade.

• The ongoing US government shutdown, which has been in effect for the past 27 days (the second-longest in history) has substantially disrupted the release of key US economic data. Since 1 October, at least 23 major economic data releases have been delayed. However, the Bureau of Labor Statistics released the September consumer inflation data on Friday, 24 October, more than a week after its scheduled publication date, to allow the Social Security Administration to calculate its annual cost-of-living adjustment. The US Senate has voted 12 times to try to resolve the shutdown, but none of the attempts got close to achieving the 60 votes needed to end it. The current betting reflects a 69% chance of the shutdown lasting more than 40 days and a 57% chance of it taking more than 45 days to resolve. In the week, a separate Republican-backed bill (Shutdown Fairness Act) to pay federal employees and contractors who continue working during the shutdown also failed to attract the required number of votes. The pressure to resolve the shutdown will increase significantly next week, given that most Federal employees are scheduled to be paid by month-end. Approximately 670 000 federal employees are furloughed, while around 730 000 other government employees deemed essential, such as air traffic controllers, transportation security, medical staff etc, are working without pay. These estimates exclude military/law enforcement personnel, who also continue to work.

• President Trump announced that negotiations with Canada are terminated, in response to a commercial critical of tariffs aired by the government of Ontario. Ontario Premier Doug Ford said the province would pause the ads, which featured former President Ronald Reagan.

• In September 2025, US consumer inflation rose by 0.3% m/m, below market expectations for an increase of 0.4%. This pushed the annual rate of inflation up from 2.9% to 3%, which was also below expectations for an increase of 3.1%. Core consumer inflation increased by a more modest 0.2% m/m and by 3% y/y. While core inflation has slowed from 3.3% at the start of 2025 it is, obviously, not in sight of the US Federal Reserve’s (Fed) inflation target and is likely to remain elevated in the coming months – partly because of the higher import tariffs. A breakdown of the US CPI data for September reveals that a range of categories recorded relatively modest monthly increases, including food (+0.2% m/m), used cars (-0.4% m/m), shelter (+0.2% m/m) and motor vehicle insurance (-0.4% m/m). These relatively subdued increases were partially offset by large increases in the price of clothing (+0.7% m/m), gasoline (+4.1% m/m), furniture (+0.9% m/m), appliances (+0.8% m/m), audio equipment (+0.8% m/m), sporting goods (1% m/m), sewing machines (+1.1% m/m), and stationery (+2.1% m/m). Many of the categories of consumer spending that recorded relatively large monthly increase were probably impacted by the higher tariffs, but (in total) represent a relatively small portion of the CPI basket. While US headline inflation has trended higher since April 2025, the impact of higher import tariffs has been far less noticeable than initially envisaged. This could be due to companies looking for alternatives ways to cope with the higher import charges, including a reduction in costs elsewhere in the business, such as the number of people employed. Given that the latest inflation data was below market expectations, a rate cut of 25 bps on 29 October appears assured.

• A Biden-era proposal in 2023 pencilled in a large increase in capital holdings for the US’s largest banks. However, this proposal was moderated last year and now the Federal Reserve Bank has shared a plan to deliver an even smaller increase in bank capital holdings. Increasing bank capital can help to protect financial institutions against losses on their lending, but it comes at a potential cost to profitability, and in some cases, their ability to expand lending. The latest plan to moderate the proposed increase in capital could potentially contribute to stronger credit growth in the US economy over the next few years and is consistent with the recent push towards looser regulation by the Trump administration. It is possible that Trump’s deregulatory agenda, which has been less of a focus than it was in his pre-election promises, especially against the backdrop of the large increases in tariffs, could become more central to the US economy and markets in 2026.

• The initial estimate of the US purchasing managers’ indexes (PMIs) for October 2025, which is compiled by S&P Global, suggested that business activity strengthened in the month. The composite PMI, which includes manufacturing and services, increased to 54.8 from 53.9 in September, marking the 33rd consecutive monthly reading above 50. Again, the services sector was the main area of strength, with the latest PMI reading recording a three-month high of 55.2, as new orders more than offset a drop in exports. The manufacturing PMI also rose, to 52.2 from 52, signalling an improvement in business conditions. However, optimism among manufacturers fell to its second-lowest level since June 2024, reflecting concerns about tariffs and policy uncertainty.

• In September 2025, SA’s headline CPI inflation increased by a modest 0.2% month-on-month, which was in line with market expectations. This pushed the annual rate of inflation up from 3.3% to 3.4%. From October 2024 to September 2025, SA’s headline inflation rate has mostly remained relatively subdued and in a narrow range of 2.7% to 3.3%, but it is expected to drift higher in the next 12 months. The monthly increase in headline CPI of 0.2% was driven by two factors, namely an increase in the rental cost of residential property and a large increase in the cost of accommodation services. Other notable price increases included a substantial increase in the price of package holidays. In contrast, food prices declined for the second consecutive month, after rising more than expected between April 2025 and July 2025. The latest inflation data should further encourage the Reserve Bank to consider cutting rates by a further 25 bps before the end of the year – despite its 3% inflation goal. A cut of 25 bps would not be in complete conflict with the recent downward revision to the Reserve Bank’s inflation objective of a sustained 3%. This is because SA’s inflation expectations have recently declined further, while any downside surprise in the actual rate of inflation keeps the level of real interest rates relatively high – and probably unnecessarily high.

• SA was placed under Increased Monitoring (grey listed) by the Financial Action Task Force (FATF) in February 2023. However, after 33 months on the list, the FATF announced on Friday that SA was no longer on the grey list. Initially SA was placed on the grey list because of deficiencies in its anti-money laundering and counter-financing of terrorism systems, which included insufficient enforcement of the laws. In June 2025, the FATF announced that SA had substantially completed all 22 action items in its action plan, paving the way for its removal from the list. The FATF also said that Burkina Faso, Mozambique, and Nigeria had substantially completed their Action Plans. Consequently, they were also removed from the grey list. At this stage, there are 20 countries still on the grey list. Although it took SA 33 months to exit the grey list, this is not unusual. For example, Tanzania was grey listed in October 2022 and removed from the list in June 2025, which is also 33 months. Nigeria spent only 25 months on the list, while Mozambique was on the list for 37 months. It took Burkina Faso 57 months to exit.

• China’s economy grew by 4.8% y/y in the third quarter of 2025, down from 5.2% y/y in the second quarter. Growth was hurt by relatively subdued expansion in household consumption as well as fixed investment. Despite the slowdown in Q3 2025, the economy should achieve the official growth goal of around 5% this year. The growth rate for Q3 2025 was, however, above market expectations for a deceleration to 4.7% y/y (Bloomberg). Given the high likelihood of China reaching its 5% growth target, it is unlikely that the government will introduce additional meaningful stimulus measures this year. Focus is likely to be on implementation and setting up the foundation for better government investment in 2026.

• Other economic data released by the Chinese authorities last week highlighted that there are several pockets of weakness in China’s economy. For example, retail sales grew by 3% y/y in September, hurt by a slower disbursement of funds for the government’s consumption trade-in programme. This is the slowest annual rate of growth in retail sales since November 2024. Fixed asset investment unexpectedly fell by 0.5% y/y in the first nine months of the year. In contrast, industrial output rose by a better-than-expected 6.5% y/y, driven by the export sector.

• On the policy front, China said it aims to “greatly increase” the country’s capacity for self-reliance and strength in science and technology in the next five years. It also vowed to maintain manufacturing’s share of the economy at a “reasonable” level as it builds a modern industrial system. These statements were contained in a communique released at the end of China’s fourth plenum, a four-day conclave of top Communist Party officials to review and approve the main themes of the 15th Five-Year Plan, a blueprint for China’s economic and social development goals from 2026 to 2030.

• The October PMI for the Eurozone showed that business activity hit a 17-month high, supported by the strongest increase in new orders in two-and-a-half years. The Composite PMI Output Index was recorded at 52.2 in October from 51.2 in September and ahead of consensus estimates for around 51.1. The services PMI climbed to a 14-month high of 52.6, while the gauge for manufacturing rose for an eighth consecutive month, to 50 from 49.8. Interestingly, while Germany recorded a solid increase in output, business activity in France fell for the 14th consecutive month, and at the fastest pace since February 2025.

• Consumer confidence in the Eurozone rose to -14.2 in October 2025, up from -14.9 in September. This is the highest level of consumer confidence in the region in the past eight months (data is provided by the European Commission). The result also beat market expectations for a decline to -15.

• The inflation rate in Japan remained above the Bank of Japan’s 2% target, with the nationwide core consumer price index (CPI) rising to 2.9% y/y in September, in line with market expectations, but up from the prior month’s reading of 2.7%. Energy and food prices drove most of the increase.

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