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CPI announcement

30 July 2020 Luigi Marinus, Portfolio Manager at PPS Investments

Consumer price inflation was 2.2% year-on-year as at the end of June 2020. This was marginally up from 2.1% year-on-year the previous month. The May inflation print was the lowest in more than a decade and June was only slightly higher.

There were some goods in the CPI basket that were banned for sale for at least a portion of the last few months and an increase of between 0.4% and 0.6% was applied to these goods. A total of 8.3% of the inflation basket had this average increase applied.

There were increases to the contribution to year on year inflation in transport (-1.2% to -0.9%) and recreation and culture (0.0% to 0.1%) while the residual (0.0% to -0.2%) showed a decrease in the contribution to year-on-year inflation.

Month-on-month inflation increased by 0.5% in June 2020, after decreasing by 0.6% the previous month. This was made up by the change in the cost of transport which increased by 0.4% and the residual which increased by 0.1%.

The South African Reserve Bank (SARB) reduced the short-term interest rate by a further 25 basis points since the last inflation print two weeks ago. At that meeting the Reserve Bank Governor reported that the expectation for GDP growth was further reduced to -7.3% for 2020 and that the Monetary Policy Committee modelled a further 25 basis points decline this year.
With inflation remaining low, a continued lack of demand and downwardly adjusted GDP growth expectations, there may be an argument for interest rates to further decline to unprecedented levels.

 

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The intention with lockdown was to delay or flatten the Covid-19 infection curve and give both the private and public healthcare sectors time to prepare for the inevitable onslaught. Did the strategy work?

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