PPS Investments: CPI for June 2023

Consumer price inflation increased by 5.4% year-on-year in June 2023, which was noticeably lower than the 6.3% year-on-year print in May.

This marks the first entry back into the 3-6% target band since the 5.9% year-on-year increase in April 2022. Inflation now averages 6.6% 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 0.2%, which was the same as the increase in May.

Even though the rate of increase to inflation slowed, the major contributor remained food and alcoholic beverages (1.9%), but this did decline from the 2.1% contribution last month. Housing and utilities (1.0%) and miscellaneous goods and services (0.9%) were the other large contributors to inflation. Transport saw a significant moderation in price resulting in a 0.3% contribution to inflation, compared to the 1.0% contribution in May. Due to the base case effect of the initial increase in the oil price, post the Russian invasion of Ukraine falling out of the one-year price increase, the price of fuel has declined 3.1% for the month and 8.3% year-on-year.

The slowdown in the inflation rate will be viewed positively and is likely to have a positive influence on local bonds. PPS Investments maintains a neutral exposure to domestic bonds across all portfolios but remains somewhat cautiously positioned as the monetary stance of the South African Reserve Bank could remain hawkish. South Africans will be hoping for some respite in interest rate hikes when the Monetary Policy Committee meets later this week and with inflation moving back within the target band it may set the precedent for a pause.