SA inflation falls to 5.7% year-on-year in January 2022

By Luigi Marinus, Portfolio Manager at PPS Investments

Consumer price inflation fell to 5.7% year-on-year in January 2022 from 5.9% recorded in December 2021. This is a welcome first decline in annual inflation since July 2021 and means inflation remains within the target band. Month-on-month inflation increased by 0.2%, which was an improvement from the 0.6% increase the previous month. This latest inflation print including a reweighting of the inflation basket, with the basket increasing from 404 to 415 products. Some interesting additions to the basket, that may have come as a result of the lockdown were printer cartridges, printer paper and cappuccino sachets.

Although transport remained the largest contributor to inflation (+1.9%), the price increase was slower than the 2.3% growth recorded last month. Other large contributors to inflation remained housing utilities (+1.1%), food and non-alcoholic beverages (+1.0%) and miscellaneous goods and services (+0.7%). On a sub-category level, although fuel declined by 2.8% for the month of January, it has increased by 32.2% year-on-year. This has led to public transport pricing increasing by 10.0% year-on-year. In addition, the price of electricity and other fuels, up 14.2%, was another large contributor to inflation.   

The SA Reserve Bank has now increased the repo rate on two occasions by 25 basis points each time. This was largely expected by the market and is in tune with global sentiment and concerns about US inflation spiralling. The US Federal Reserve will soon be faced with the decision of whether to hike their short-term interest rates, as US inflation surprised on the upside. While we are cautious about the prospects of global bonds, the PPS funds remains constructive on local bonds, both nominal and inflation-linked bonds, to benefit from the persistent steep yield curve.