SA's inflation rate
Adriaan Pask, CIO at PSG Wealth
The event
• South Africa’s annual inflation rate (CPI) accelerated to a 13-year high of 7.40% in June2022, from 6.50% in May 2022, above the South African Reserve Bank’s (SARB) monetary policy target range of between 3% to 6%.
• Prices continued to spike mostly for transport (20% vs 15.70% in June 2022); food and non-alcoholic beverages (8.60% vs 7.60%); housing and utilities (5.10% vs 4.90%) as well as miscellaneous goods and services (4% vs 3.90%).
• Annualised core inflation, which excludes food, non-alcoholic beverages, fuel, and energy prices, also surpassed expectations and rose to a high of 4.40% in June 2022, the highest since March 2019, from 4.10% in the previous month.
• On a monthly basis, inflation rose to 1.10%, after increasing 0.70% in May 2022 and above market expectations of a
• 0.80% rise
• Click here to download the latest press release from Statistics South Africa here.
The impact
• The FTSE/JSE All Share Index (ALSI) rose by 0.99% to 68 456 points on Wednesday morning. The biggest winners in morning trade were Vivo Energy, Dis-Chem, and Glencore, while Foschini, Investec Limited and Investec PLC lagged.
• The rand rebounded from the night before, trading at R17.06/$, while it struggled against other major currencies, trading at R17.48/€ and R20.52/£ at 11h30 on Wednesday.
• South Africa’s 2-year government bond yield rose to 6.75%, while the 5-year and 10-year yields came in at 9.52% and 11.11%, respectively.
• Stats SA has updated its CPI basket of goods and services this year to thoroughly reflect patterns in household spending, technology, and consumer preferences. Following the most recent update, the CPI basket now comprises of 415entries, up from 404 recorded in the last update five years ago. New additions include consumer technologies, personal care products, alcohol beverages and household items.
The assessment
• The SARB forecast of headline inflation for 2022 is revised higher to 5.90% (from 5.80%), due to higher food and fuel prices. While food prices are expected to remain elevated, fuel price inflation should ease in 2023, helping headline inflation to ease to 5%. Headline inflation of 4.70% is now expected in 2024.
• Higher-than-expected CPI data has pressed major central banks to accelerate their normalisation of global policy rates, tightening global financial conditions. On balance, capital flow and market volatility are expected to remain high for emerging market assets and currencies. Therefore, the implied policy rate path of the SARB’s quarterly projection model, given the inflation forecast, indicates gradual normalisation through to 2024.
• We remain watchful of the impact of fluctuations in inflation and interest rates on shares exposed to substantial discount-rate risk over this period and we will continue to adjust our equity portfolios accordingly.
• The next release date for CPI data recorded in July 2022 is scheduled for Wednesday, 24 August 2022.
