Consumer Inflation Posts 4.9% y/y in June

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Consumer inflation posts 4.9% y/y in June

Consumer price inflation is up 4.9% y/y in June 2021, after posting 5.2% y/y in May, slightly above market expectation of 4.8%. Core inflation currently sits at 3.2% y/y from 3.1% previously, fuel inflation is up by 27.5% from 37.4%, and food and non-alcoholic beverages inflation is unchanged from last month at 6.7%. Headline inflation is up by only 0.2% m/m. Explaining the m/m rise in headline inflation is 0.22ppt added from core inflation, 0.03ppt from food inflation, while fuel shaved off 0.01ppt.

Monthly pressure in core inflation was 0.3%, mainly on the back of increased housing inflation, which posted 0.6% m/m and 1.0% y/y and contributing 0.12ppt to m/m core inflation. Public transport posted 2.5% m/m and 6.9% y/y, adding 0.08ppt. Household contents and services increased 0.8% m/m and 1.3% y/y, adding 0.05ppt. Vehicles inflation was 0.2% m/m and 5.5% y/y, adding another 0.02ppt.

Monthly fuel inflation was still decelerating in June; a stronger rand at the time outweighed climbing oil prices. Compared to May, fuel inflation decreased by 0.2%.

Food and non-alcoholic beverages inflation was up 0.2% m/m. The subcategories that were driving food price pressure were meat (up by 0.7% m/m and 8.6% y/y, contributing 0.22ppt to monthly meat pressure); milk, cheese and eggs (0.6% and 6.3%, adding 0.09ppt); oils and fats (1.4% and 21.6%, adding 0.04ppt); and other food (0.6% and 3.2%, adding another 0.04ppt). Fruits and vegetables shaved off 0.22ppt.


In line with our expectations headline inflation has started slowing, reflecting diminishing base effects that affected April and May outcomes. We expect y/y headline inflation to trend even lower for the remainder of this year – ending 2021 closer to the 4.5% midpoint of the SARB’s 3% to 6% inflation target range. Core inflation should also moderate, ending the year closer to 3%. Food inflation should remain relatively elevated, and risks are that a disruption to processing and distribution networks following the civil unrest could place upward pressure on non-essential food products, but the extent thereof is not yet clear.

Panic buying could be another source of upward pressure on goods inflation. Still, our view is that overall demand remains muted, especially with the number of jobs currently at risk as well as low consumer confidence. Housing inflation could still climb, continuing to place upward pressure on core inflation sooner than expected.

Other risks to the outlook would come from a weaker rand that could drive fuel inflation higher, but oil stocks should lift following the higher OPEC+ production agreement. Overall, it will be interesting to see how inflation expectations have evolved in 2Q21, a quarter in which inflation was higher. Current-year inflation expectations were 3.9% in 1Q21 and should not have jumped too much, supporting the starting point of an accommodative monetary policy stance.

In the next CPI release we will get new municipal utility data (6.13% of CPI), insurance connected with dwellings (1.14%), as well as funeral expenses and insurance (2.16%).

Figure 1: Headline CPI '

Figure 2: Contributions to headline CPI



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