PPS' analysis on CPI announcement
<!-- wp:paragraph -->
<p><strong>By: Reza Hendrickse, Portfolio Manager at PPS Investments.</strong></p>
<!-- /wp:paragraph -->
<!-- wp:paragraph -->
<p><span class="x_-1515097963font">Consumer Price Inflation (CPI) slowed to 3.0% year-on-year in April 2020, its lowest point in over a decade. This was a marked deceleration from the 4.1% March year-on-year increase, and a continuation of the disinflationary trend of recent years. The environment for CPI data collection in April was challenged by the COVID-19 lockdown. This resulted in a smaller sample size being used, as well as the utilisation of online goods pricing where possible, and some index adjustments where products were not available for sale.</span></p>
<!-- /wp:paragraph -->
<!-- wp:paragraph -->
<p><span class="x_-1515097963font">Similar to the prior month, the main contributors to CPI this period were food and non-alcoholic beverages (0.7% contribution), housing and utilities (1.1% contribution), and miscellaneous goods and services (1.0% contribution), all of which added to higher inflation. Transport however saw a month-on-month decline, swinging to a negative 0.5% contribution in April from a positive 0.5% previously. Transport was the biggest driver behind the 1.1% drop in CPI from 4.1% in March to 3.0% in April, which speaks to the reduction in travel from the Government’s self-imposed lock-down restrictions which limited travel.</span></p>
<!-- /wp:paragraph -->
<!-- wp:paragraph -->
<p><span class="x_-1515097963font">The South African Reserve Bank lowered the repo rate by 100 basis points in April and a further 25 basis points in May, offering pre-emptive support to the vulnerable SA economy in the face of the looming economic shock. This brings the cumulative interest rate reduction to 2.75% since the start of the year, which has been appropriate given the drastic change in our economic outlook. The current environment is unique in that we’re seeing both a supply and demand shock, both locally and globally, with the medium-term net effect most likely leading to inflation remaining subdued for now. As a result, there is probably still scope for the SARB to provide further accommodation.</span></p>
<!-- /wp:paragraph -->
