Luigi Marinus, Portfolio Manager at PPS Investments

Commentary on CPI for December 2021

Consumer price inflation increased by 5.9% year-on-year as at the end of 2021, which was up from the 5.5% increase recorded in November 2021. This means that average inflation for 2021 was 4.5%, which happens to be at the mid-point of the target band and 1.2% higher than the average inflation recorded in 2020. Month-on-month inflation increased by 0.6%, slightly greater than the 0.5% the previous month.

As in the previous three months, all 11 inflation categories saw price increases over the last year, with transport (2.3%), food and non-alcoholic beverages (1.0%) and housing and utilities (1.0%), being the largest contributors to year-on-year inflation. Among the sub-categories, fuel for transport (up 40.5%) and electricity and other fuels (up 14.0%), which are inputs in many industries, experienced large price increases over the past year.  

Although consensus estimates were for inflation to increase, but remain within the target band, the current upward trend in inflation is notable. The South African Reserve Bank (SARB) has acted by increasing short term interest rates at their last meeting, in line with most emerging market central banks. Even though rate hikes have started, bonds continue to offer significant real yields which have particularly benefitted inflation-linked bond investors. The PPS funds therefore maintain a high bond allocation with an appropriate blend of nominal and inflation-linked bonds.