By Adriaan Pask
South Africa’s Consumer Price Index (CPI) inflation remains unchanged at 5.9% year-on-year in April 2022. Economists expect that the South African Reserve Bank (SARB) could hike the repo rate by 50 basis points (bps) to 4.75% today, in an attempt to tame inflation which has reached the upper end of the bank’s target range of between 3% to 6%. We remain watchful of the impact of fluctuations in inflation and interest rates on shares exposed to substantial discount-rate risk over this period and we will continue to adjust our products when warranted.
The inflation stats
• The inflation figure of 5.9% year-on-year was largely driven by a spike in food and non-alcoholic beverages of 6%; housing and utilities, which rose by 4.8%; transport, which increased by 14.7%, while miscellaneous goods and services rose by 3.8%.
• On a monthly basis, inflation increased by 0.60%, following a 1% increase in the previous month.
• Annualised core inflation, which excludes food, non-alcoholic beverages, fuel, and energy prices, rose to 3.9% in April 2022, meeting predictions.
The impact
• Shortly after the data was released at 10.20am yesterday, the FTSE/JSE All Share Index rose to 0.35%. The biggest winners of the morning session were South32 (up 4.2%), Alphamin (2.94%) and Gold Fields (1.82%).
• The rand was in the green, trading at R15.95 to the US dollar, R16.77 to the euro and R19.79 to the British pound.
• South Africa’s two-year government bond yield increased to 5.64%, the five-year and 10-year yields came in at 8.41% and 10.79%, respectively.
The assessment
• Economists expect that the South African Reserve Bank (SARB) could hike the repo rate by 50 basis points (bps) to 4.75% this afternoon. In an attempt to tame inflation which has reached the upper end of the bank’s target range of between 3% to 6%.
• A weaker rand at the moment compared with the bank’s quarterly projection model of R15.40/USD could also impact the SARB’s decision.
• We remain watchful of the impact of fluctuations in inflation and interest rates on shares exposed to substantial discount-rate risk over this period and we will continue to adjust our products when warranted.
• The next release date for inflation data is scheduled for Wednesday, 22 June 2022.
Adriaan Pask is chief investment officer at PSG Wealth.