Sanisha Packirisamy, Economist, Momentum Investments

• According to Statistics South Africa (Stats SA), consumer price inflation (CPI or headline inflation) was 5.2% year-on-year (y/y) in May 2024, unchanged from April 2024. Similarly, core inflation was unchanged at 4.6% y/y in May. Both headline and core inflation outcomes were in line with the Reuters median consensus.

• Following a 0.5 percentage point drop in April to 4.7% y/y, food and non-alcoholic beverages inflation (NAB) was unchanged in May but food inflation eased to 4.3% y/y. We expect domestic food inflation to continue easing in 2024. The surge in white maize prices, propelled by drier weather conditions, introduces upward food price pressures in the coming months. On the bright side, the price of other agricultural food products was hardly affected by El Niño conditions.

• The price of SA’s top imported food products or expected import volumes could be favourable for SA in 2024/25 relative to the previous season. The United Nations (UN) Food and Agriculture Organisation (FAO) expects downward pressure on global wheat prices in 2024/25. The global price of rice is expected to remain elevated, but SA is expected to import less rice in 2024 than in 2023. Global poultry demand is expected to be higher and could drive prices up but poultry is expected to remain affordable related to other meats.

• Transport inflation ticked up to 6.3% y/y in May from 5.7% y/y in April largely on the back of a rebound in public transport inflation from negative 0.6% y/y in April to 2% y/y in May.

• Following four consecutive months of petrol (ULP 95) price increases which accumulated to a total increase of R2.98/l over the period, the Central Energy Fund (CEF) announced a R1.24/l decrease in petrol prices in June. The decrease represents a 42% reversal in petrol price increases since February 2024 and will exert downward pressure on transport inflation in June. The CEF’s estimated over-recovery (as at 18 June) points to a further petrol (ULP 95) price decrease of R1.08/l in July. Diesel (0.05%) is estimated to decrease by around R0.43/l in July.

• International oil price developments and the value of the rand were positive for domestic fuel prices in June and contribute positively to the expected fuel price cuts for July.

• In June 2024, the Organisation of the Petroleum Exporting Countries (OPEC+) announced an extension in the broader oil supply cuts by one year to the end of 2025. Voluntary cuts were also extended by three months to September 2024. The intention is to phase out the voluntary cuts from October 2024 depending on market conditions.

• We expect the SA Reserve Bank (SARB) to keep interest rates unchanged in the July 2024 interest rate setting meeting. We maintain our expectation about a possible interest rate cut in September 2024.

• Factors influencing our projection for an interest rate cut in September include the likely moderation in inflation expectations, the expected moderation in headline inflation, ongoing rand strength, a faster-than-anticipated moderation in food inflation, relatively stable international oil prices and interest rate easing by some major global central banks. Risks to our forecast include the sustainability of rand strength, international oil prices given geopolitical risks and delayed interest rate cuts from the Unites States (US) Federal Reserve (Fed).

ENDS