South Africa’s latest inflation print for June came in higher than expected, not only making an interest rate hike more likely this week, but a bigger hike of 50 basis points is also now on the cards.<\/p>\n\n\n\n
According to Stats SA’s latest CPI report, inflation in the country spiked to 5.0%. This was higher than economists’ expectations of around 4.7%.<\/p>\n\n\n\n
While a rise in inflation was expected, projections were lower after the inflation print in May surprised on the downside, coming in cooler than anticipated.<\/p>\n\n\n\n
However, the massive increases in fuel prices since the onset of the United States’ war with Iran, alongside sharp hikes in electricity and administered prices, pushed costs higher.<\/p>\n\n\n\n
According to Investec Chief Economist Annabel Bishop, CPI inflation for high-income earners was especially egregious, jumping to 5.5% y\/y in June. <\/p>\n\n\n\n
But virtually all other income\/expenditure bands saw inflation rise to above 3.0% y\/y as higher inflation has become broad-based.<\/p>\n\n\n\n
This means that inflation is sitting above the South African Reserve Bank’s 3% target across the board.<\/p>\n\n\n\n
Core inflation, which excludes food, non-alcoholic beverages, fuel and energy prices, also moved higher, now sitting at 4.1% y\/y from 3.8% y\/y in May, and 3.6% y\/y in April.<\/p>\n\n\n\n
This puts core cost outside the SARB’s 3% target with a one-percentage-point flexibility band as well.<\/p>\n\n\n\n
Because of this, the SARB’s Monetary Policy Committee (MPC) is now very likely to hike interest rates this week, when governor Lesetja Kganyago makes the announcement on Thursday (23 July).<\/p>\n\n\n\n
Economists were split on whether the SARB would hold rates or hike rates by 25 basis points this week, with most already leaning towards the hike.<\/p>\n\n\n\n
However, Bishop said that the reignited war in Iran\u2014which has pushed global oil prices higher once again\u2014means that inflationary pressure may continue.<\/p>\n\n\n\n
Furthermore, despite petrol prices dropping by R1.96 per litre in July, the annual electricity price increases that came into effect for municipal customers this month will counteract this.<\/p>\n\n\n\n
And the petrol price cut indicated for August of close to R3.00\/litre at the start of the month has reduced to only 67c\/litre.<\/p>\n\n\n\n
These conditions have put a 50-basis-point cut on the menu for the July meeting.<\/p>\n\n\n\n
“The MPC discussed a 50bp lift at its last meeting in May, and this will likely be back on the table as the SARB seeks to contain inflation expectations,” Bishop said.<\/p>\n\n\n\n
She noted that inflation expectations have already jumped, and the latest Stats SA print shows that CPI is far beyond the upper tolerance band of 4.0% y\/y.<\/p>\n","protected":false},"excerpt":{"rendered":"
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