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April’s inflation figure stays constant, but rates expected to go up

Published May 19, 2022

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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.

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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.

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• 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%).

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• 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

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• 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.

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