The headline consumer price index annual inflation for August 2016 is 5.9%, marginally down by 0.1 of a percentage point from 6% in the same period last year. This decreased prices by 0.1% between July 2016 and August 2016, trimming only slight pressure off consumers. Core inflation – which excludes food, petrol and energy prices – recorded a 5.7% increase over a comparable period, maintaining the same reading as a month earlier.
Commenting on the latest figures, SEIFSA Economist Tafadzwa Chibanguza welcomed the existence of an underlying trend of inflationary reprieve, saying that consumers will welcome the much-needed relief, albeit minimal.
“Consumers have been under a lot of financial pressure in the last few months and the latest reading on consumer inflation from StatsSA will offer some much-needed reprieve,” Mr Chibanguza said.
However, Mr Chibanguza said that this emerging picture should be viewed with a degree of caution since both readings (headline and core) place at the upper edge of the South African Reserve Bank’s inflation target of 3% to 6%.
Mr Chibanguza said the main contributor to the annual inflationary decrease was the transport sub-component, which decreased two basis points as a result of an average 7.2% decrease between petrol and diesel prices. At the same time, the recreation and culture component increased one basis point in the comparable period, resulting in the net one basis point decrease in the August 2016 annual reading.
He said that the strength of the Rand against the US Dollar in August also contributed significantly to the inflation outcome.
Since the end of June, the Rand had been on a strong recovery path, with the strongest points being recorded in August. Over this period, the currency recovered by 12.7%, trading below $1/R14 for the first 24 days of August.
“This undoubtedly contributed to the August 2016 reprieve. Unfortunately, it would not take a lot of factors to go wrong to reverse the trend and place us outside of the upper end of the target range,” Mr Chibanguza said.
He said that continuation of the current scenario – with the Rand/Dollar exchange rate below $1/R14 and strengthening, Brent crude oil trading below $50/barrel, a weak economy and consumers still being under pressure – was likely to lead to the Monetary Police Committee (MPC) of the Reserve Bank leaving the interest rate unchanged at the conclusion of its meeting tomorrow.
“The inflation reading announced today would give the MPC one more reason to hold back from a rates increase for now, providing further relief to the consumer,” Mr Chibanguza concluded.