PPS Investments: CPI for July 2022

Consumer price inflation increased by 7.8% year-on-year in July 2022, up from the 7.4% year-on-year in the previous month. Inflation now averages 6.4% for the calendar year (2022) to date, which is well above the top end of the target band. Month-on-month inflation increased by 1.5%, compared to the 1.1% increase the previous month.

Once again transport has been the largest contributor to inflation, as has been the case for every month this year apart from January, which coincides with the Russian invasion of Ukraine in February and the subsequent sharp increase in the price of oil. Transport contributed 3.4% to inflation, followed by food and non-alcoholic beverages (1.7%) and housing and utilities (1.0%). Over the past few months, increasing inflation has been widespread with all 11 inflation groups experiencing increasing prices. Transport as an inflation group increased by 25.0% year-on-year but fuel and public transport as sub-sectors of the group increased by 56.2% and 22.0% respectively. While the increase in electricity and other fuel prices moderated somewhat to an 8.1% year-on-year increase, food prices continued to increase as evidenced by the 10.1% increase in food as a sub-sector.

In a world of increasing inflation, largely driven by developed markets, it’s inevitable that South Africa would be affected too. This can partly be explained the difference in inflation between goods and services. Goods inflation rose to 11.5% compared to inflation on services that increased by 4.2%. The South African Reserve Bank has been ahead of the curve by increasing interest rates before inflation rose above the top end of the band, but this latest inflation print would suggest that the hiking cycle is not over yet. This remains a difficult period for consumers and the investment market. At PPS Investments, we have moderated risk in our portfolios but remain constructive on domestic nominal and inflation-linked bonds due to the high yields that remain on offer.