Luigi Marinus, Portfolio Manager at PPS Investments

Consumer price inflation increased by 5.9% year-on-year in March 2022, which was up from the 5.7% year-on-year increase the previous month. Although this means that CPI has stayed within the target band it has remained above the midpoint of the band since May 2021. Month-on-month inflation increased by 1.0%, which was up from the 0.6% increase the previous month.

As was the case in February, transport was again the largest contributor to inflation (+2.1%), up from the 1.9% increase previously. Housing and utilities (+1.2%, previously +1.1%) and food and non-alcoholic beverages (+1.1%, unchanged) were the other large contributors over the year, with all 11 inflation groups increasing inflation. 

On an inflation sub-group level, the largest contributors were once again fuel (+33.2%), electricity and other fuels (+14.1%) and public transport (14.0%), which make up 4.82%, 3.70% and 2.43% of the basket respectively. This results in CPI excluding food and non-alcoholic beverages, fuel and energy having only increased 3.8% year-on-year. 

Even though the largest contributor to inflation was fuel, implying supply constraints, rather than demand inflation, the South African Reserve Bank (SARB) is still likely to continue increasing short term interest rates going forward. Interest rates are at low levels when compared historically, the SA yield curve remains steep and globally central banks are generally in a hiking cycle to reduce inflation. The PPS funds continue to use the opportunity to maintain an overweight exposure to both nominal and inflation-linked bonds.

‍