South Africa’s latest inflation figures are likely the peak in the current cycle and the figures are likely to moderate towards the end of the year, Nedbank economists said in a research note on Wednesday (20 July).
South Africa’s latest inflation numbers are likely the peak in the current cycle, and the figures are expected to moderate towards the end of the year, Nedbank economists said in a research note on Wednesday .
“After that, it is likely to start moderating gradually off a high base to end the year around 7%. Furthermore, there have been signs of moderation in international food and crude oil prices in recent months, and global supply chain pressures have receded slightly after China relaxed Covid restrictions.”
“Given the accelerating tightening of global monetary policy, the uncertain outlook for the rand, and the need to bring inflation below the upper end of the target range, we believe that the SARB will hike interest rates by 50 basis points tomorrow and in September before scaling down the margin of the hikes to 25 basis points in November. This will lift the repo rate to 6% and the prime rate to 9.5% by the end of the year,” Nedbank said.
Both petrol and diesel prices rose by over R2 per litre in July and should exert upward pressure to the upcoming inflation print, adding to persisting food price pressures, she said. In addition, the survey of municipal increases will appear in core and electricity inflation. “The likely lift in expectations, alongside higher market inflation forecasts, as well as a more aggressive US Fed should place further upward pressure on local interest rates. The MPC is broadly expected to hike by 50bps points tomorrow, bringing the level of the repo rate to 5.25%.
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