Tentative signs of inflation easing at a headline level
Herman van Papendorp, Head of Investment Research & Asset Allocation and Sanisha Packirisamy, Economist at Momentum Investments
Momentum Investments have released their report based on ‘Tentative signs of inflation easing at a headline level’ prepared by the Momentum Macro Research Team.
Please see below, a summary of highlights from the team, as well as commentary from Sanisha Packirisamy, Economist at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.
According to Statistics South Africa (Stats SA), August’s headline inflation figure dropped to 7.6% year on year (y/y) from a recent high of 7.8% in July.
The figure surprised markets marginally to the upside given the Reuters median consensus forecast of 7.5%.
The monthly 0.2% rise in headline inflation was largely underpinned by a 1.7% increase in food prices, with a notable rise in bread, dairy and vegetable prices, and a 2.2% uptick in the prices of non-alcoholic beverages.
Even though agricultural input costs have come off their peaks, they remain significantly higher than a year ago. Agrochemicals, fertilisers and fuel have, in particular, driven up the prices of agricultural goods.
Petrol prices (inland 95) dipped by a significant 132 c/l in the August inflation report. In September, the petrol price was cut by another 204 c/l, which will drive a further deceleration in transport inflation in the coming months. Petrol prices are expected to be cut again in October, with the Central Energy Fund (CEF) estimating a current over-recovery of 117 c/l.
Despite the notable cut in fuel prices in August, fuel inflation remained 43.2% higher than a year ago and continues to be a drag on consumers’ pockets.
Nearly a third of the weighted inflation basket experienced price increases above 6% in August 2022 (down from 41% of the basket in June). Categories registering inflation above this 6% mark last month included food, non-alcoholic beverages, electricity, transport, restaurants and personal care.
Despite headline inflation showing tentative signs of easing and a temporary moderation in core inflation for August, we continue to forecast a 75-basis point increase in interest rates for the September 2022 interest rate-setting meeting, to be followed by a 50-basis point rise in November as the SA Reserve Bank (SARB) continues to defend its credibility by acting against potential inflation persistence. They are also likely to continue raising interest rates to stem the jump in inflation expectations, which have reacted to higher food and fuel costs.
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