The growth in annual consumer price inflation (CPI) eased slightly to 3.1% y/y in August 2020 from 3.2% y/y in July 2020 in line with market expectations and driven by lower changes in food and electricity prices. The main contributors to the headline were food and non-alcoholic beverages, housing and utilities as well as miscellaneous goods and services categories, which slowed to 3.9% y/y, 3.1% y/y and 6.6% y/y in August 2020 from 4.3%, 3.2% and 6.7% y/y respectively. Collectively, these categories added 2.6 percentage points to the total. On a monthly basis, CPI increased by 0.2%.
Core inflation increased to 3.3% y/y in August 2020 from 3.2% y/y in July 2020, driven by increased demand on the back of the further lifting in lockdown restrictions, which prompted more economic activity and consumers continued to purchase more durable goods. The annual inflation rate for goods and services eased to 2.2% y/y and 3.8% y/y in August 2020 from 2.3% y/y and 3.9% y/y in July respectively.
In August 2020, lockdown measures were eased further from level 3 to level 2 resulting in more goods and services available for consumption and broadening the CPI basket as some banned products could now be traded. While some improvement is seen in consumer confidence, demand remains subdued.
At its September Monetary Policy Committee meeting, the SARB’s headline consumer price inflation forecast remained slightly steady at an average of 3.3% in 2020 and marginally lower than previously forecast at 4.0% in 2021 and stable at 4.4% for 2022. The forecast for core inflation was revised lower at 3.4% in 2020 and is expected to remain broadly stable at 3.7% in 2021, and 4.0% in 2022. The overall risks to the inflation outlook were assed to be balanced, with global producer price and food inflation having bottomed out and oil prices quite low. More so, the SARB’s QPM model projections indicated no further repo rate cut in the near term, however two rate increases are projected in the second half of 2021. Inflation will likely remain well below the SARB’s 4.5% midpoint in 2020 and 2021 and as a result policy rates are unlikely to change.