PPS Investments: CPI for August 2023

Consumer price inflation increased by 4.8% year-on-year in August 2023, slightly higher than the 4.7% year-on-year print in July.

This marks the first increase in inflation since March but the third consecutive print in the 3-6% target band. Inflation now averages 6.1% for the year to date and needs further moderation in the remainder of the year to average below the top end of the target band by year-end. Month-on-month inflation increased by 0.3%, which was noticeably lower than the 0.9% month-on-month increase in July.

Food and non-alcoholic beverages (1.4%), housing and utilities (1.3%), and miscellaneous goods and services (0.9%) were the largest contributors to inflation, while transport (-0.1%) was the only detractor to inflation due to the base effect of previous strong increases. On a subsector level, the recent increase in electricity prices was evident with the 15.1% increase in electricity and other fuels over 12 months. Food which makes up 15.3% of the inflation basket was up 8.2% highlighting the difficulties faced by consumers especially as stables such as bread and cereals were up 9.9% and milk, eggs, and cheese were up 11.9%.

While it may be speculated that the South African Reserve Bank (SARB) is at or close to the top of its interest rate hiking cycle, the continued hawkish stance most likely means that the first rate cut is still some time away.

How are the PPS portfolios positioned?
PPS Investments maintains a neutral exposure to domestic bonds across all portfolios and continues to hold a sizable exposure to inflation-linked bonds as both insurance against a possible surprise to inflation and due to the high real yield available. It remains likely that the SARB will factor in the action of global central banks when deciding on their next move.