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PPS Investments: CPI Commentary

21 April 2021 Luigi Marinus, Portfolio Manager at PPS Investments

Consumer price inflation increased by 3.2% year-on-year as at the end of March 2021, which was greater than the 2.9% year-on-year increase from the previous month. Inflation breached the lower end of the target band for only one month but has remained modest at the lower end of the band.

There were year-on-year increases to food and alcoholic beverages (0.9% to 1.0%), transport (0.2% to 0.5%), miscellaneous goods and services (0.6% to 0.7%) and the residual (0.0% to 0.1%), while there were year-on-year declines to housing and utilities (0.6% to 0.5%), household content and services (0.1% to 0.0%) and education (0.2% to 0.1%).

Month-on-month inflation increased by 0.7% in March 2021 after increasing by the same percentage the previous month. There were changes in contribution to month-on-month inflation in food and non-alcoholic beverages (0.0% to 0.1%), alcoholic beverages and tobacco (0.0% to 0.1%), education (0.0% to 0.1%) and miscellaneous goods and services (0.4% to 0.1%). All other groups showed no price change over the month.

Although inflation appears to be well-contained in South Africa, inflation expectations have increased somewhat. Locally, inflation is expected to increase to around the midpoint of the target band by the end of the year, which could lead to a move away from the current cutting interest rate cycle. Globally, and in the US in particular, inflation has edged higher with the US Federal Reserve confirming that inflation will need to be at high levels for a reasonable time before they are likely to hike rates. There are therefore many factors the South African Reserve Bank needs to consider in their decision-making in the near future.

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