SARB Holds Its Ground as Inflation Cools

Local South African inflation took a refreshing dip, settling at 5.4% in June, piercing below the SARB’s upper policy target range of 6% for the first time since April 2022. The notable 0.9 percentage point drop between May and June is the biggest plunge since May 2020, giving South Africans all the reasons to feel that inflation is on a sustained downward path. 

The consumer price index (CPI) witnessed a riveting rollercoaster ride in June. Among the twelve key categories, six saw annual inflation cool down, one remained steady, while five set the temperature higher. Inflation for food and non-alcoholic beverages slowed for the third consecutive month to a tantalizing 11% from a high of 14% in March. Inflation for alcoholic beverages and tobacco quickened to 6.1% in June, up from May’s reading of 5.9%. 

Much to the relief of many local consumers, annual transport inflation tumbled from 7% in May to a mere 1.8% in June due to softer fuel prices. In June 2023, the fuel index declined by 8.3% compared to twelve months ago. 

With South African consumer inflation for June within the Reserve Bank’s target range, SARB Governor Lesetja Kganyago sent waves of relief to local consumers, leaving the repurchase rate unchanged at 8.25%. With the next MPC meeting on 21 September 2023, market participants will be eager to see how general price levels evolve in optimistic anticipation of a rate cut in the latter half of the year. Given the lagging effect of monetary policy, there appears to be sufficient time for the current restrictive stance to work through the economy and see prices fall toward the mid-range target rate of 4.5%. 

Sources: Resbank, StatsSA

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