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Financial Planning

PPS comments on CPI announcement

By: Luigi Marinus, Portfolio Manager at PPS Investment

Consumer price inflation increased to 3.1% year-on-year as at the end of August 2020, which was marginally lower than the 3.2% year-on-year from the previous month. Inflation therefore remained within the target band after being below the bottom end of the band earlier this year. Since lockdown level 1 was instituted tickets to sporting events are the only basket item that is still banned from sale. The only increase in contribution to year on year inflation was in alcoholic beverages and tobacco (0.1% to 0.2%), while both recreation and culture (0.1% to 0.0%) and the residual (0.0% to -0.1%) showed a decrease in the contribution to year-on-year inflation.

Month-on-month inflation increased by 0.2% in August 2020, after increasing by 1.3% the previous month. The 0.2% month-on-month increase was made up by a 0.1% increase in transport for the month as well as a 0.1% increase in the residual. All other groups showed no price increase over the month.

In the most recent Monetary Policy Committee (MPC) meeting the Reserve Bank Governor announced their decision to leave interest rates unchanged. There was some concern about the trajectory of inflation as the previous inflation print showed an increase from 2.2% to 3.2%. This latest print however shows that inflation has remained muted with even water and other services and electricity and other fuels showing a somewhat modest 6.1% and 6.0% year-on-year increase respectively. These were items that have experienced increases well above in the top end of the target band in the past. With inflation remaining low, the MPC may find it difficult to not reduce short interest rates the next time they meet.

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