The SA Daily
29 July 2020
CPI below 3% in June
Shireen Darmalingam
- Stats SA releases the June CPI later today; we expect headline inflation to come in at 2.1% y/y in June, the same as in May. This should mark the trough in the inflation trajectory for now; we expect a gradual uptrend from July as the sharp decline in fuel prices that pressured inflation is now beginning to unwind.
- Recall, inflation fell below 3% for the first time in 15 years in May. The moderation in headline inflation was driven by a dip in fuel prices early in the year. Fuel prices were responsible for the entire 0.6% m/m decline in the CPI; fuel prices (as measured in the CPI) fell 12.2% m/m (down 25.9% y/y). Food prices increased 0.6% m/m (4.8% y/y) in May. Our inflation forecasts trough at 2.1% y/y (in May and June), from where we expect a gradual uptrend.
- The SARB expects CPI to average 3.4% in 2020; CPI for 2021 is expected at 4.3% (previously 4.4%) while CPI in 2022 is expected at 4.3% (previously 4.4%). Inflation is expected to peak at 5.1% in Q2:21. The central bank noted that the risks to inflation are assessed to be balanced.
- Low global inflation (including low oil prices), a weak exchange rate pass-through and local demand is expected to help inflation remain contained this year. As such, we expect inflation to average below the SARB’s estimate and have pencilled in 3.1% in 2020. It is also below the consensus forecast of 3.4%.
- With a benign inflation outlook sketched for this year, we expect the SARB to hold rates steady for the remainder of the year following 300 bps worth of policy accommodation thus far. A gradual hiking cycle is expected in 2021.
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