Yesterday, local Consumer Price Index (CPI) data for July was released and surprised markets, dropping below expectations. Headline CPI slowed to 4.6% y/y in July, below consensus estimates of 4.8% y/y and the previous figure of 5.1% y/y in June. Additionally, Core CPI, the measure of consumer inflation that excludes volatile energy and food and prices, eased to 4.3% y/y in July from +4.5% y/y the previous month. The downside surprise in the headline figure was driven by lower fuel prices, subdued food prices, and a stronger ZAR, which brought headline CPI within reach of the South African Reserve Bank’s (SARB) 4.5% y/y midpoint inflation target. In addition to slower fuel, food and a stronger ZAR, the absence of load-shedding and improvements to infrastructure (ports and railways) have created a favourable setup for inflation to continue decelerating towards the target. The slowdown in price growth opens the door for the SARB to start the rate-cutting cycle in September. As it stands, the central bank is widely expected to ease monetary policy by 25 basis points (0.25 percentage points), especially if the US Federal Reserve begins cutting next month.
The US also had some interesting developments yesterday. Firstly, the US Federal Reserve’s FOMC meeting minutes for July were released yesterday, and several officials acknowledged that there is a case for rate cuts starting in September. With the Fed concerned over the labour market, a first Fed cut in September looks all but certain, so the question is at what pace will the Fed ease monetary policy beyond that. This becomes complicated by an expected seasonal rise in consumer spending through the US summer, which will stoke US inflation to some degree. Secondly, which only adds complexity to the Fed’s task, was the US Bureau of Labor Statistics (BLS) significant downward revision of job growth figures for the year ending in March 2024, reducing the previously reported total by 818,000 jobs.