July inflation rate falls to lowest in 2016

Cape Town - Statistics South Africa on Wednesday announced that the country's consumer price index (CPI) was 6.0% in July 2016, down from 6.30% in June. The index increased by 0.8% month-on-month (m/m) in July 2016. This is the lowest the CPI has been this year.

“An improved inflation profile and a stable rand exchange rate would strengthen the argument for no further interest-rate hikes in this tightening cycle,” Kamilla Kaplan, an economist at Investec in Johannesburg, told Bloomberg in an e-mailed note to clients before release of the data. This is particularly “as economic growth prospects remain poor and downside risks persist.”

The MPC, which left borrowing costs unchanged at its past two meetings, forecasts inflation will peak at 7.1 percent in the last quarter of the year.

Housing and utilities decreased from 1.6 percentage points in June to 1.4 percentage points in July. The index increased by 5.8% year-on-year (y/y).

Food and non-alcoholic beverages contributed 0.1 of a percentage point in July. The index increased by 0.5% m/m, mainly due to a 2.7% increase in sugar, sweets and desserts, a 1.1% increase in  milk, eggs and cheese and a 0.8% increase in bread and cereals.

Housing and utilities contributed 0.6 of a percentage point in July. The index increased by 2.4% m/m, mainly due to a 10.1% increase in water tariffs, a 5.5% increase in assessment rates and a 7.5% increase in electricity tariffs.

Transport contributed 0.1 of a percentage point in July. The index increased by 0.8% m/m, mainly due to the 11 cents per litre increase in the petrol price.

In July the CPI for goods increased by 6,5% year-on-year (down from 6,7% in June), and the CPI for services increased by 5.7% y/y (down from 5,8% in June).

Provincial annual inflation rates ranged from 4.8% in Northern Cape to 7.9% in Limpopo.

Overberg Asset Management said in its weekly overview of the economic and political landscape in South Africa that it expected CPI to moderate slightly from 6.3% year-on-year in June to 6.1% in July, according to the  consensus forecast

"However, CPI Is unlikely to break below the SA Reserve Bank’s (Sarb's) 3-6% target range over the foreseeable future due to the lingering effect of drought-induced food price increases and high administered price increases such as municipal rates and electricity. The Sarb expects CPI to remain above the target range until the third quarter 2017,^" it said.