PPS Investment - CPI announcement

Consumer price inflation increased by 3.2% year-on-year as at the end of July 2020, which was sharply up from the 2.2% year-on-year increase from the previous month.

After being below the bottom of the target band for two consecutive months, inflation returned to just within the target band. A portion of the CPI basket was banned for sale during either June or July and an imputation adjustment was made which was aligned to the average increase for the month. There were increases to the contribution to year on year inflation in transport (-0.9% to 0.0%), miscellaneous goods and services (1.0% to 1.1%) and the residual (-0.2% to 0.0%) while only housing and utilities (1.0% to 0.8%) showed a decrease in the contribution to year-on-year inflation.

Month-on-month inflation increased by 1.3% in July 2020, after increasing by 0.5% the previous month. Housing and utilities (0.0% to 0.4%), transport (0.4% to 0.6%), alcoholic beverages and tobacco (0.0% to 0.1%) and miscellaneous goods and services (0.0% to 0.1%) all showed increases to inflation for the month.

The narrative in South Africa has been that it’s hard to see where inflation comes from when labour is under pressure and general demand has been low. This most recent inflation print reminds us though, that inflation can move sharply, especially when coming off a low base. One could however still argue that even after a somewhat surprising increase, in terms of the size of the increase, inflation remains low and while it is contained below the midpoint of the target band there remains scope for the South African Reserve Bank to continue to provide relief by further decreasing interest rates.