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CPI for September 2021

20 October 2021 Luigi Marinus, Portfolio Manager at PPS Investments

The Reserve Bank governor has recently touted the idea of a 3% point target for inflation, in order to structurally reduce long-term inflation. While the market does not believe that this will be implemented it does raise the indication of the aim to reduce inflation over time.

PPS portfolios have a material allocation to inflation-linked bonds as a hedge to increasing inflation, should this manifest. However, the base case scenario is not for runaway inflation, so a diversified portfolio across asset classes allows investors to benefit from high yields in the bond market and the favourable valuations of local equities.

Consumer price inflation increased by 5.0% year-on-year as at the end of September 2021, which was an increase from the 4.9% year-on-year print recorded the previous month. This is the first time inflation reached the 5.0% level since May 2021, when inflation was recorded at 5.2% and the only the second time since November 2018. Month-on-month inflation saw a modest 0.2% increase after the 0.4% increase last month.

All 11 categories assessed by Stats SA experienced price increases over the past year with the largest contributors to inflation being transport (1.4%), food and alcoholic beverages (1.1%), housing and utilities (1.0%) and miscellaneous goods and services (0.7%). It was also interesting to note that goods inflation increased by 7.1%, while services inflation increased by only 2.9%, which may have been as a result of less service related purchases due to COVID protocol adherence. Fuel for transportation was up 19.9% year-on-year and electricity and other fuels was up 14.0% which together make up more than 8.3% of the inflation basket.

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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