Compiled by: Richard Favis
RBC Capital Markets
+27 11 784 5065
Benign inflation data was released in the South African market this week which seems to have justified the South African Reserve Bank's (SARB) decision to cut rates earlier in the month. Both consumer and producer inflation measures were better than the market had anticipated, stimulating heated debate among economists as to the direction of interest rates movements in the future.
South Africa's CPIX inflation (headline inflation excluding mortgage costs) came in at 4.2% year on year in July compared with 5.0% year on year in June and 4.4% year on year in May. Month-on-month CPIX was up 0.3% compared with a 0.2% increase in June. CPIX, which is used by the SARB for its inflation target, was expected to rise by 4.3% year on year.
The main contributors to the 4.2% increase in the CPIX were annual increases in housing, medical care and health expenses; transport; household operation; food; and education.
In light of the inflation friendly data releases, market participants are now at odds over whether there is further scope for the SARB to cut rates, or if the Reserve Bank will leave rates unchanged.
Local bonds rallied on the back of much better than expected PPI for July.
Next Tuesday private sector credit extension, money supply, trade balance figures and the GDP number for the second quarter will be released.