Anchor Capital CPI Comment

  • Market Overview

The latest inflation print was released today (21 July), coming in at 4.9% YoY in June 2021, down from May’s 5.2% YoY print. The most notable point of this data release was that accommodation inflation edged higher.

It is important to remember however that Stats SA records housing rentals every quarter, with the latest survey taking place in June (2Q21). This component accounts for a sizeable chunk (17%) of the inflation basket and includes actual and imputed rentals. Actual rentals increased by 0.4% MoM and imputed rentals by 0.6% MoM in June. In May 2021, both actual and imputed rentals dipped by 0.2% MoM, and in June 2020 both increased by just 0.1% MoM.

Fuel also recorded its third consecutive month of double-digit inflation, but these relatively high rates come off the low base recorded during 2Q20, when fuel prices were depressed. Overall, the print is in-line with our expectations- i.e., more muted as last year's low base effects begin to dissipate. This latest print continues to indicate the current higher inflation numbers are indeed transitory, and will continue to trend downwards for the remainder of this year as the low base effects dissipate.  Off the back of this latest inflation number, our view remains that the SA Reserve Bank (SARB) will not change interest rates at Thursday’s (22 July) meeting.

The rand’s trajectory will still likely drive the timing and pace of the pending interest rate hiking cycle. The sharply higher food and fuel prices may lift the bank’s near-term inflation forecasts and the bank may also express concern about the inflationary consequences of the unrest (via potential rand weakness and/or supply constraints). However, provided that the rand remains reasonably resilient (bearing in mind that the SARB has already assumed a weaker exchange rate over the medium term), the SARB is likely to continue to see the fuel and food pressures as short-lived.

The bank had reiterated at its last Monetary Policy Committee (MPC) meeting in May 2021, that it would look beyond any temporary inflation pressure

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