StatsSA published June’s inflation numbers yesterday, and the increase surprised economists. The inflation rate was 5% year-on-year and quite far from the 3% target. The increase was driven by fuel price increases in June. The prices of passenger transport services (taxis and buses) also increased in response to the high fuel prices. The category Housing and utilities (specifically electricity tariffs) also saw a significant increase. Some good news is that food prices increased at a slower rate.
The Reserve Bank’s Monetary Policy Committee have been meeting over the past few days and will announce their repo rate decision this afternoon. The question that they need to answer is whether the increase in inflation is still only a fuel price shock, or if the fuel price increases are being passed on to other goods and services and has started a spiral of price and wage increases. If it is a temporary shock, they can hold the repo unchanged, but if this is the start of an inflationary process, they need to increase it.
A quick look at different inflation measures shows that this is not an easy decision. The inflation rate excluding fuel is up since March, but still relatively flat.
