Inflation will be firmly in focus this week, with the consumer price index (CPI) expected to have continued its relentless upward climb in May and possibly even breached the upper 6% limit of the target band.
Annual CPI remained unchanged in April at 5.9%, marking the 12th consecutive month in which annual inflation had been higher than the midpoint of the Reserve Bank’s 3%-6% target range.
While much of the recent pressure on inflation is from food and fuel prices, worsened by the Russia-Ukraine war, core inflation and price pressures in the services sector are also building as the SA economy recovers from the pandemic.
With no end in sight to the Ukraine war, analysts say local inflation could run above the Bank’s target range and trigger more rate hikes as energy and food prices remain elevated.
“Our preliminary forecast is for headline inflation to touch the upper inflation target band of 6% in May as food and petrol prices continue to climb,” said FNB economists.
“Despite the extension of the fuel levy relief, petrol prices still increased by over R2 per litre in June and this should continue to have spillover effects to other consumer items. The relief extension did, however, delay the peak in headline inflation.”
The Bank has tightened its monetary policy four times since November 2021 to bring its repo rate to 4.75% as it sought to tame inflation, which it recently revised to average 5.9% in 2022 and said it will slow to an average 5% in 2023 and 4.7% in 2024.
After the Bank’s 50 basis points (bps) rate hike in May, which was the largest increase since 2016, the May inflation data could indicate if the 50bps hike will become a trend or not.
The May CPI data will be released on Wednesday. If it does hit 6% year on year, it will be the highest monthly print since March 2017.
The FNB/BER building confidence index for the second quarter of 2022 will also be published on Wednesday.
The index — which measures the mood of respondents in the sector — rose six points to 40 in the first quarter of 2022, after slipping to 30 in the preceding three months. This was the highest level since 2018 as confidence in the building sector rebounded, reflecting optimism in prevailing business conditions.
The building confidence index studies respondents from six sub-sectors: architects; quantity surveyors; main contractors; subcontractors, including plumbers, electricians, carpenters and shop fitters; manufacturers of building materials such as cement, bricks and glass; and retailers of building material and hardware.
The index is measured on a scale of zero to 100, with zero indicating an extreme lack of confidence and 100 indicating extreme confidence.
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