July headline inflation drops to 4.6% from 5.1% in June.
Anchor Capital said it welcomed July headline inflation as measured by the Consumer Price Index (CPI), easing to 4.6% in July from 5.1% in June. This follows the announcement by Stats SA this year.
Anchor Capital said that this marks the lowest inflation rate in three years, matching the annual 4.6% rate recorded in July, 2021.
“The decline was driven by lower annual rates across several product groups, particularly in food and non-alcoholic beverages (NAB), transport, and housing and utilities. Core inflation (excluding the more volatile price categories of food, fuel, and electricity) came in at a muted 4.3% year on year, below estimates of a 4.5% year on year print.”
Anchor Capital added that in recent months core inflation has remained relatively stable, consistently hovering around the midpoint of the South African Reserve Bank’s (Sarb) target band.
“Occasional increases in core inflation, particularly from sectors like medical insurance and financial services appear to be more related to post-pandemic normalisation rather than demand-driven inflationary pressures.”
Anchor Capital added that while these isolated up-ticks are worth noting, they do not seem to jeopardise the overall stability of core inflation.
“This resilience is due to several factors, including the limited pass-through of exchange rate fluctuations to consumer prices, subdued demand conditions, and, importantly, the credibility and effectiveness of the Sarb’s monetary policy framework – despite the pressures consumers feel due to elevated interest rates.”
Anchor Capital said that looking ahead, they anticipate a further decline in inflation over the remainder of 2024, potentially dropping below 4.5% year on year by Q4 in 2024.
“This anticipated decline in inflation, along with expected interest rate cuts starting towards the end of this year is likely to boost consumer sentiment further. Naturally, the timing and extent of these anticipated rate cuts depend on the inflation outlook (locally and abroad) and global interest rate developments, as we progress towards the end of the year,” it said.
Anchor Capital added that at this stage, they expect an initial rate cut of 25bps in September, followed by a further 50 to 75bps worth of cuts in 2025 and leading into 2026.
The Mercury
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