Inflation hits 5.1% in July - Stats SA

Annual consumer price inflation increased to 5.1% in July, up from 4.6% in June, Statistics SA announced on Wednesday. This is the highest rate since September 2017.

On average, prices increased by 0.8% between June 2018 and July 2018.

Stats SA said that, among the contributors the CPI, the housing and utilities sector increased from 1 percentage point in June 2018 to 1.3 percentage points in July. The sub-index increased by 5.2% year-on-year (y/y).

Transport increased from 1 percentage point in June 2018 to 1.4 percentage points in July. The index increased by 10% year-on-year.

Miscellaneous goods and services decreased from 1 percentage point in June 2018 to 0.9 of a percentage point in July. The index increased by 5.7% year-on-year.

In July the CPI for goods increased by 5.3% y/y (up from 4.2% in June), and the CPI for services increased by 5% y/y (up from 4.9% in June).

Provincial annual inflation rates ranged from 4% in Limpopo to 5.9% in the Western Cape.

Slightly ahead of expectations

Jason Muscat, FNB Senior economic analyst said the July inflation is slightly ahead of the bank's expectation of 5%.

"This is the first time the index has breached the 5% mark since September 2017, and while it remains within the SA Reserve Bank's target band, it is beginning to drift from the 4.5% midpoint the central bank would like to see the rate anchored at," commented Muscat.

He added that core inflation having picked up modestly to 4.3% y/y from 4.2% the prior month, underscores the weakness in the demand side.

Muscat further pointed out that rising transport costs were again the biggest driver of the jump. The increase was for the most part due to rand weakness, which saw a 20.3% y/y jump in private transport costs, petrol prices 25.3% higher than at the same time last year, and a 3.3% y/y jump in public transport costs.

The other driver of the rise in the headline number was from the housing and utilities component. The housing component was pushed higher on account of water and electricity costs which are surveyed in the month.

"Inflation amongst most other items was relatively contained as retailers battle to pass higher costs on to stretched consumers, who now have to apportion far greater amounts of their disposable income to transport, water and electricity costs," said Muscat.

"While we don’t believe the higher print will create too much discomfort amongst the Monetary Policy Committee (MPC) members, it may well necessitate bringing forward rate hike expectations to the first half rather than the second half of 2019."

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