Inflation Takes a Chill Pill: What It Means for Consumers

EasyAssetManagement reports inflation dips slightly in April, offering hope for consumers as food prices stabilize. Analysis on CPI trends, core inflation, and potential interest rate cuts ahead.

CPI cools down (a little): Is the fire finally out?
Good news for consumers. Inflation dipped slightly in April, coming in at 5.2% compared to 5.3% in March. This decrease might seem small, but it's the second month in a row that inflation has surprised on the downside, even beating analyst expectations.

So, what's driving this trend? While overall prices rose slightly month-to-month (0.2%), the increase was mainly due to transportation costs. Even better news: food price inflation seems to be tempering. Grocery bills rose
just 0.2% in April, and the year-over-year increase for food prices dropped to 4.4% from 4.9% in March. This is particularly encouraging for essential items like cereals, meat, and dairy products, although vegetable prices did see a bit of a bump.

Food inflation might be easing up a bit. While some experts are worried about El Niño affecting corn and cereal prices later this year, and vegetable prices like tomatoes might even go up next month, the overall outlook for non-core inflation (excluding food and energy) seems to be improving. This is because fuel prices are expected to fall soon, especially if the current exchange rate between the US dollar and South African Rand holds steady during the upcoming elections. That said, food inflation is still likely to stay between 4% and 5.4% for the rest of the year. So, while there might be some temporary relief at the pump, grocery bills could still see some fluctuations.
Core inflation, which excludes volatile food and energy prices, dipped slightly to 4.6% in the latest survey. This is even better than what economists were expecting (4.7%) and reflects a technical adjustment
.

One key reason for the lower core inflation is that health insurance price hikes, which happened earlier in 2023, are no longer affecting the year-over-year comparison. Additionally, public transportation costs also saw a slight decrease, contributing to the overall softness in core inflation.

Looking ahead, experts predict core inflation might fall a little bit more in the coming months, potentially reaching the central bank's target of around 4.5%. This is encouraging news for the economy, suggesting a potential slowdown in price increases.

The market is currently expecting the central bank (SARB) to start cutting interest rates in September this year. These cuts could potentially bring the rate down to 7.5% by mid-2025. However, there are a few things to keep in mind.
The first big factor is what's happening globally. If other countries start cutting rates earlier or later than expected, it could affect South Africa's inflation outlook and currency value. The second risk is the upcoming national elections in May. While the chance of a major economic disruption is considered low, it's still something to watch.

Finally, there's some concern about inflation in service industries, especially after recent changes in health insurance prices. However, some experts believe this concern might be overblown. The central bank will likely hold off on any official announcement about rate cuts at their May meeting, but they might still be hinting at the possibility in the future. There's a small chance the first-rate cut could be delayed until early next year (Q1 2025).




Rise Enhanced Equity Movements
The JSE clawed its way back from early losses on Friday, closing the week slightly higher at 79,195. This uptick was driven by resource companies, banks, and telecom firms. However, a sense of uncertainty lingered among investors. Strong economic data from the US raised concerns about the US Federal Reserve continuing its interest rate hikes for a longer period, potentially dampening global markets.

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