PPS Investments: CPI for December 2023

Consumer price inflation cooled in December, to 5.1% year-on-year, compared to 5.5% in November. Inflation remains above the July trough of 4.7%, but still within the SARB’s target band. Analysts expected CPI to trend lower towards the mind-point over the course of 2024.

Food and non-alcoholic beverages, which make up 17.1% of the CPI basket, contributed 1.5% of overall year-on-year inflation. Consumers would attest to that, having experienced significant increases in essential food items, such as vegetables, sugar-related products, and dairy, which experienced the largest price increases. Housing and Utilities, which account for 24.5% of the basket were also significant contributors to inflation, adding 1.3%. The largest increases came from electricity, which rose 15.2%.

Going forward, economists expect disinflation over the course of 2024, with CPI approaching the mid-point of the SARB’s target range. This echoes the trend in the US, where inflation is also expected to continue falling in 2024. With inflation becoming less of a problem, it’s likely we have reached the peak in the interest rate cycle, which Central Banks have also begun alluding to. Reduced price pressure and the lower debt funding cost would be well-received by consumers who are starting to feel the pinch. We can see evidence of this in recent results announcements from some domestic retailers.

Although the current high interest rate environment is uncomfortable for borrowers, investors have been able to capitalise on the high yield available from low-risk asset classes such as cash. PPS Investments is currently overweight SA cash in multi-asset portfolios and are well-positioned to take advantage of the current interest rate climate.