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The SA Daily 19 July 2018

Still soft inflation

  • June inflation of 4.6% y/y undershot expectations of 4.8% y/y, but was marginally higher than 4.4% y/y in May. Underlying inflation pressure is still benign. However, it’s too soon to assess the eventual impact of rand weakness and the second-round impact of higher oil prices.
  • The soft CPI data should provide comfort to the SARB and the market amid the inflationary risks from rand weakness and elevated oil prices. Nevertheless, we’d expect these risks to underpin relatively hawkish rhetoric at the MPC meeting today.
  • We forecast inflation to average 4.6% in 2018 and 5.0% in 2019 premised on a recovery in the exchange rate to R12.70/$ by end-2018 along with a modest retreat in oil prices. We’d therefore expect the SARB to keep interest rates steady over the next 12 months.
  • Subdued underlying inflation, and sluggish economic growth, should curb monetary tightening when upside inflation risks materialise (refer to our report Benign CPI in June at 4.6% y/y of 18 July, by Elna Moolman).

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