Actual: 5.5% y/y; 0.2% m/m (June)
Expected: 5.6% y/y; 0.3% m/m (June)
Previous: 5.7% y/y; 0.1% m/m (May)
CPI recorded another m/m and y/y moderation in June. We still expect CPI to average 5.5% for 2012. We expect CPI to trend close to 5.0% in Q4:12, largely due to lower commodity prices.
Core inflation which excludes food, non-alcoholic beverages, petrol and energy increased to 4.6% y/y in June from 4.4% y/y in May.
While we don’t expect the SARB to cut interest rates tomorrow, we believe that there is now heightened probability of a rate cut in the future. We still forecast an unchanged monetary policy stance by the SARB over a 12-month period.
The downward trend continues
Food (CPI basket weight: 14.27%): A softer print in June at 6.0% y/y from 6.8% y/y in May. This component contributed 0.9 pps to CPI.
We expect food inflation to decline through to year-end, with a print of around 5% at year-end.
We note that key grain prices have risen substantially in recent weeks, with white maize for delivery in December rising 30% since 15 June, from R2,050/mt to R2,688/mt today (this is due to higher international maize prices due to the recent drought in the US, together with low crop yields from Russia). While we doubt that maize prices will sustain this move higher until December, the current developments in the grain market do pose upside price risk for this CPI component early next year.
Transport (CPI basket weight: 18.8%): Inflation of the overall transport component moderated to 6.2% y/y in June from 6.7% y/y in May. The transport component contributed 1.1 pps to inflation in June.
The petrol price component of transport (which carries a weight of 3.93% in the basket) fell to 14.2% y/y and -4.6% m/m in June, from an increase of 19.4% y/y and 2.4% m/m in May.
Petrol prices declined 55c/l in June from R12.22/l to R11.67/l (a 4.5% m/m decline). Downward momentum will remain in place in July on the back of another 85c/l decline in petrol prices this month. However, the downward trend in petrol prices is likely to stall in August as the current international oil price points to an under-recovery in the petrol price.
The housing and utilities (CPI basket weight: 22.56%): Inflation in the housing and utility component moderated to 6.4% y/y in June from 6.7% y/y in May. The housing and utility component contributed 1.5 pps to CPI in June.
The main drivers of the lower print during the month emanated from electricity and other fuels, owners’ equivalent rent, and actual rentals for housing.