CPI commentary for July 2021

Consumer price inflation increased by 4.6% year-on-year as at the end of July 2021, which decreased from the 4.9% year-on-year increase from the previous month. An inflation increase near the mid-point of the target band is aligned with the goal of the South African Reserve Bank and should reduce pressure to increase short-term interest rates.

PPS multi-asset portfolios have maintained an overweight exposure to domestic bonds that continue to benefit from moderate inflation levels and a steep yield curve. The latest inflation figure reinforces the view that on overweight domestic bond relative to domestic cash exposure is appropriate for clients seeking an above-inflation return.

Month-on-month inflation did however increase 1.1% after a 0.1% increase last month. This is as a result of the large 1.3% monthly increase in July 2020 no longer being part of the 12-month calculation.

Food and non-alcoholic beverages, up 6.7% and transport, up 8.0% year-on-year were the major contributors to inflation. Within transport, fuel was up 15.2% as oil prices have increased globally, but this was moderated in the category by smaller increases in the prices of vehicles sold and running costs of the sector. Even though electricity and other fuels increased by 13.6%, the housing and utilities category was up 2.0% as owners’ equivalent rent, which makes up more than half of the category, only increased by 1.0% over the 12-month period.