Sell-Side Desks Comment On S. African Inflation Data Ahead Of SARB Rate Decision

The focus in South Africa shifts to tomorrow's SARB monetary policy decision after data showed that headline inflation slowed to +5.4% Y/Y in June, undershooting the consensus forecast of +5.5%. Core CPI inflation fell to +5.0% Y/Y, missing the median estimate of +5.1%.

• Nedbank write that "the moderation in inflation continued to reflect the impact of a slowdown in food and transportation costs." They "expect inflation to remain below 6% for the remainder of the year, ending the year at around 5%." Before the release of inflation data, they had been looking for a 25bp rate hike from the SARB tomorrow. They think that today's numbers strengthen the case for no further hikes, which could mark the peak of the rate-hike cycle, although still expect tomorrow's rate decision to be a close call.
• Investec note that following today's inflation outturn, "there will be some temporary upwards pressure from base effects in 4Q2023, which the MPC should look through." They think that the latest CPI print supports a flat interest rate decision tomorrow. They expect that CPI inflation will average near 5.7% this year, barring a sudden and severe rand weakness, e.g. on the back of an adverse geopolitical event. They do not expect any further rate hikes from the SARB.
  
• JP Morgan write that "it was the small moderation in services inflation (...) that caused the June surprise relative to (...) consensus expectations." They reaffirm their view that the SARB faces two dovish (more benign near-term inflation outlook and contained risks of continued FOMC tightening) and one hawkish development (fiscal risks). They expect a close rate decision tomorrow, with a split MPC debating keeping rates on hold vs. a 25bp hike. Their base case is for a 25bp hike.
  
• Goldman Sachs say that the decline in headline inflation was driven primarily by easing petrol and food price pressures. In light of three months of large declines and downside surprises to inflation, the recent ZAR strengthening, and signs of weakness in the real economy, then stand by their earlier call for an on-hold SARB decision tomorrow.