FANews
FANews
RELATED CATEGORIES
Category Economy
SUB CATEGORIES General |  Budget 2017 |  Budget 2018 |  Budget 2019 |  Budget 2020 | 

Inflation drops to 4% y-o-y in July

21 August 2019 Lullu Krugel, PwC Strategy& Chief Economist for Africa, and Dr Christie Viljoen, PwC Strategy& Economist

Significant fuel price decline eases transport pressures

Statistics South Africa (Stats SA) reported on August 21 that consumer price inflation dropped from 4.5% year-on-year (y-o-y) in June to 4.0% y-o-y in July. This was lower than economists’ median expectation of 4.4% and also the lowest reading since March 2018. A measured 10.4% y-o-y increase in electricity prices at the start of July had very little impact on overall inflation as spending on power and other household fuel account for only 3.8% y-o-y of the spending basket. Inflation on housing and utilities increased only marginally, from 4.9% y-o-y in June to 5.1% y-o-y in July.

The major driver behind the drop in headline inflation during July was a significant slowdown in transport inflation. The petrol retail price and diesel wholesale price declined by 75c/litre and 95c/litre, respectively, on July 3. The decline in local fuel costs was largely associated with a decline in international fuel prices. Slowing global economic growth, uncertainties over Brexit and the US-China trade war, and suggestions that some of the world’s largest economies could risk falling into recession, all contributed to pressure on international energy prices. This resulted in domestic fuel prices (as measured by Stats SA) declining by 0.5% y-o-y in July. This was a significant correction from a reading of 11.6% y-o-y as recently as May.

Source: Stats SA, SARB

For cash strapped South Africans, and especially those in lower income brackets, a moderation in food price inflation from 3.2% y-o-y in June to 3.0% y-o-y in July would be welcomed. However, prices pressures are building from the supply side, with Stats SA measuring a 5.7% y-o-y in the cost of food production during June (most recent data). The South African Reserve Bank (SARB) warned in July of expected food inflation increases from the end of 2019, peaking at 5.6% in the second and third quarters of 2020. With this in mind, the central bank said it expects headline inflation to average 4.4% this year and 5.1% in 2020.

Given the inflation outlook, the SARB is not expected to make any changes to its lending rates over the next 12 months. And based on the central bank’s view on the (limited) value of reducing interest rates as a tool to stimulate the local economy, there is also no real possibility of seeing any interest rate changes. SARB Governor Lesetja Kganyago commented in a speech on July 24 that, according to central bank modelling, a 25-bps cut in the repo rate will result in a mere 0.1 percentage point increase in GDP growth over a 12-month period. This underscores the SARB’s argument that significantly faster economic growth rate is dependent on structural reforms, not monetary policy stimulus.

Quick Polls

QUESTION

By now you most probably have a favorite!!! No, not the one you are routing for to win, but a favorite, favorite. A contestant that you prefer to all others, who is especially well-liked. Is it:

ANSWER

Amogelang Kgaladi
JP Ellis
Kanchaal Mahabeer
Memory Zimba
Nabeelah Maharaj
Sebastian Reddy
Siphamandla Dube
Vicky Sebothoma
Yaseen Essop
A E fanews magazine
FAnews February 2020 Get the latest issue of FAnews

This month's headlines

2020… The start of a new decade
Updates to the insurance regulatory framework
Funding in the golden years… Past the 100s
Anticipate unprecedented types of claims
Risk trends and their interconnections
Digital transformation in healthcare
Global bond investments getting riskier
Subscribe now