By Koketso Mano.
Headline inflation slowed to 4.6% y/y in July, down from 5.1% in June. The print was below our expectation of 4.8%. Monthly headline inflation was 0.4%, driven by electricity price pressures, which contributed 0.4ppts, and core, which added 0.2ppts, while fuel shaved off 0.2ppts.
Core inflation eased to 4.3% y/y, but monthly pressure was 0.3% driven by water and other services that contributed over 0.2ppts. Services inflation was 4.7%, from 4.6% previously. Core goods inflation fell to 3.6% from 4.5% in June.
Electricity price inflation was 11.0% m/m and 12.1% y/y. More price increases at the municipal level could be recorded over the upcoming months.
Average fuel prices fell by 3.6% m/m but were up by 4.5% when compared to July 2023.
Food and non-alcoholic beverages (NAB) inflation continued easing to 4.5% y/y from 4.6% in the previous month. There was no monthly pressure as the positive contributions from cereals and NAB inflation was countered by slower meat and vegetable prices.
Outlook
Headline inflation could be broadly sideways in August, as any monthly pressure on food and utility costs are contained by the continued fall in fuel prices.
Slowing global inflation, stable oil prices, a less depreciated rand, and subdued domestic demand remain supportive to lower inflation this year. We anticipate that inflation will fall below the 4.5% target over the next few quarters but lift at the turn of next year as base effects become less favourable. Nevertheless, this trend should be supportive of headline inflation averaging below 5.0% this year and potentially below 4.5% next year.
The risk is that geopolitical tensions flare up, lifting the risk premium on commodity prices and keeping logistical costs elevated.
The August inflation print is scheduled for release on 18 September. Major periodical surveys conducted in August include any remaining municipal charge increases (6.25% weight in CPI).
