Have we really turned the corner when it comes to inflation, and will the Reserve Bank continue to keep interest rates on ice? Find out in the latest episode of No Ordinary Wednesday with Investec Economist Lara Hodes.


June’s CPI inflation rate dropped to 4.7% year-on-year (y/y) and 0.9% month-on-month (m/m) , from 5.4% y/y in June, below the Bloomberg market consensus of 4.9% y/y. However, it is likely to lift somewhat in August on base effects as July 2022 proved to be the peak for the inflation trajectory currently in South Africa.

The upwards pressure (from statistical base effects) will continue from August over Q4.23, causing CPI inflation to return to around 5.0% y/y.

In July, electricity prices rose by 18.5% for municipalities, and this contributed the bulk 0.7% m/m to the overall CPI inflation outcome. The inflation rate for electricity and other fuels rose 14.2% m/m in July (and 14.7% y/y). 

The petrol price effect

In the same month, the petrol price fell by a small 17c/litre drop, contributing some slight downwards pressure to inflation. August recorded a petrol price hike of 37c/litre, which will contribute 0.1% to the m/m outcome. September, however, is currently on course to see a more notable petrol price rise, of 160c/litre, which will provide a significant contribution, of 0.3% m/m, to that month’s CPI inflation rate.

Food inflation drops slightly

The largest component of the CPI, food and non-alcoholic beverage prices, contributed 0% m/m to the inflation outcome, as July saw international (US dollar) agricultural food commodities prices fall by -4.2% m/m while the rand strengthened by 3.3% m/m, contributing to a significant lowering in price pressures. 

Specifically, the inflation rate for food in July dropped to 10.0% y/y (0.2% m/m) from 11.0% y/y in June, benefiting as well from the statistical base effects of high food prices from a year ago.

Core inflation remains sticky

Besides the marked drop in the CPI inflation rate, to 4.7% y/y, the core inflation rate eased lower to 4.7% y/y as well, from 5.0% y/y, as the descent in the core CPI inflation rate proves stickier.  We expect CPI inflation will average 5.8% y/y this year, although the rand and fuel prices pose risks.

Food price inflation over Q2.23 fell on base effects, aided by the same base effects causing global food price deflation at the agricultural level (-11.1% y/y), and this will be a factor in August too

However, from September the base effects will be lower, as global food prices stopped climbing sharply, which will lessen the deflationary effect aiding the drop in headline inflation figures globally and locally.

Inflation in 2024?

Looking further forward, while CPI inflation is expected to average around 4.5% y/y in 2024, there are risks, particularly from the large food price inflation component, with an El Nino (below average rainfall) beginning, while retailers are seeing margin squeeze on the costs of load shedding mitigation, and this has not fully come through into the inflation figures in South Africa.

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