CPI for September 2021

Luigi Marinus, Portfolio Manager at PPS Investments

The Reserve Bank governor has recently touted the idea of a 3% point target for inflation, in order to structurally reduce long-term inflation. While the market does not believe that this will be implemented it does raise the indication of the aim to reduce inflation over time. PPS portfolios have a material allocation to inflation-linked bonds as a hedge to increasing inflation, should this manifest. However, the base case scenario is not for runaway inflation, so a diversified portfolio across asset classes allows investors to benefit from high yields in the bond market and the favourable valuations of local equities.

Consumer price inflation increased by 5.0% year-on-year as at the end of September 2021, which was an increase from the 4.9% year-on-year print recorded the previous month. This is the first time inflation reached the 5.0% level since May 2021, when inflation was recorded at 5.2% and the only the second time since November 2018. Month-on-month inflation saw a modest 0.2% increase after the 0.4% increase last month.

All 11 categories assessed by Stats SA experienced price increases over the past year with the largest contributors to inflation being transport (1.4%), food and alcoholic beverages (1.1%), housing and utilities (1.0%) and miscellaneous goods and services (0.7%). It was also interesting to note that goods inflation increased by 7.1%, while services inflation increased by only 2.9%, which may have been as a result of less service related purchases due to COVID protocol adherence. Fuel for transportation was up 19.9% year-on-year and electricity and other fuels was up 14.0% which together make up more than 8.3% of the inflation basket.

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