Sanisha Packirisamy, Economist at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.

Highlights:

• Headline inflation inched higher to 5.9% in March 2022, from 5.7% in February 2022. The figure came in slightly below the Reuters consensus estimate of 6% but met the Bloomberg consensus forecast of 5.9%.
• The monthly 1% rise in headline inflation was predominantly underpinned by an increase in fuel prices.
• Russia’s further invasion of Ukraine drove international oil prices higher in April 2022. The monthly Oil Market Report for April 2022 by the Organisation for the Petroleum Exporting Countries (OPEC) shows a downward adjustment in global oil demand for the year amid severe new lockdown measures in China. The release of emergency reserves also aided a tight oil market. Nonetheless, the Organisation for Economic Co-operation and Development (OECD) countries insisted that no supply shortages exist and they have agreed to a modest monthly output increment for May 2022.
• Higher fuel and fertiliser costs pose a threat to local food inflation in the coming months at a retail level. Although the recent flooding in KwaZulu-Natal has raised concerns over food security, agricultural experts suggest this can be avoided if government finds alternative routes to the Port of Durban.
• Although the gap with goods inflation remained sizeable at 5.3%, services inflation ticked higher to 3.4% on the back of rising housing costs. Measures of underlying inflation, including core inflation, the median rate of inflation and the trimmed mean, remain well within the 3% to 6% inflation target band but edged higher in March 2022.
• Higher international oil prices and an accelerated hiking cycle globally are likely to support a further normalisation in local interest rates to curb a further rise in inflation expectations. We continue to expect an interest rate increase of 25 basis points at the May 2022 interest rate-setting meeting.

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