PPS Investments: CPI for May 2023

Consumer price inflation increased by 6.3% year-on-year in May 2023, which was a decline from the 6.8% year-on-year print in April. This marks the second successive year-on-year decline and the largest decline since May 2020 when the COVID-19 lockdown was in effect. Inflation now averages 6.8% for the year to date and remains above the South Bank Reserve Bank expectation of where it should average for the full calendar year. Month-on-month inflation increased by 0.2%, compared to the 0.4% increase in April.

The major contributors to inflation remained consistent but there was a moderation in most year-on-year increases. Food and non-alcoholic beverages contributed 2.1% having increased 11.8% compared to the 13.9% increase last month. Both housing and utilities and transport each contributed 1.0% to the inflation increase, while miscellaneous goods and services contributed 0.9%. It remains notable that all 11 inflation subgroups were positive contributors. On a more granular level, apart from the large increase in food prices, electricity, and other fuels increased by 8.0% and public transport by 14.2%, highlighting the strain on average consumers.

In the most recent Monetary Policy Committee meeting it was again decided to increase interest rates by 50 basis points, maintaining the governor’s hawkish stance of targeting an inflation level of 4.5%. The PPS portfolios have been able to take advantage of the hike in interest rates by holding and increasing the floating rate exposures across portfolios. The yield on these assets reset as interest rates increase resulting in higher cash returns and a more conservative asset allocation.