SA’s headline inflation slowed to its lowest reading in 20 months, falling to within the Reserve Bank 3-6% target range. This further supports the view that the Bank might keep the repo rate steady at Thursday’s monetary policy committee rate announcement.
Stats SA on Wednesday said the country’s consumer price index fell to 5.4% from 6.3% in May. The reading is below the Thomson Reuters consensus of 5.6%.
Stats SA said that of the 12 main categories covered by the consumer price index (CPI), six saw a drop in annual inflation in June, one remained unchanged and five recorded increases.
On an annual basis, food inflation slowed to 11.1% from 11.8% in May, 14.3% in April and a peak of 14.4% in March. At 11.1%, food inflation continues to be extremely high and a clear concern given its high weighting of 15.3% in the inflation basket.
Economists say the annual rate of food inflation is still expected to continue to slow over the coming months, supported by a slowdown in agricultural inflation to 2.2% year on year in May from a recent peak of 18% in November 2022, while manufactured food inflation has eased to 8.8% from a peak of 16.4% in September 2022.
Stanlib chief economist Kevin Lings said the continued moderation in agricultural and producer food inflation was not a definitive indication that consumer food inflation would continue to slow.
“Especially given how erratic agricultural inflation has been recently — [but] it provides some room for optimism that we are moving past the worst of the current food inflation cycle,” Lings said.
Other notable price changes in June include annual transport inflation, which fell from 7% in May to 1.8% in June as a result of softer fuel prices.
Stats SA data shows that the fuel index fell by 8.3% in June 2023 compared with June 2022.
Prices for oils and fats decreased for the tenth successive month, with the index declining 9.5% in the 12 months to June. Stats SA said the average price of a 750ml bottle of sunflower oil was R35.57 in June 2023, lower than the R43.97 price tag in June 2022.
The annual inflation rate for alcoholic beverages and tobacco increased to 6.1% from 5.9% in May.
Annual core inflation also fell, reaching a five-month low of 5% in June from 5.2% in May, and below forecasts of 5.1%.
Core inflation has been inside the target for the past 26 months, and above the midpoint of the target of 4.5% for the past 10 months.
Lings said that while the decline in core inflation was welcome, risks that may affect it on the upside included an upward bias in wage increases, the pending 18.65% increase in electricity tariffs and continued cost pressures due to electricity outages.
Lings said Stanlib expected SA’s inflation rate to remain inside the target range of 3%-6% throughout the second half of 2023, notwithstanding the pending large increase in the electricity price and recent rand volatility.
Update: July 19 2023
This article has been updated throughout with new information.
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