ECONOMIC WEEK AHEAD | Temporary slowdown in consumer inflation in June expected

Consumer inflation data from Stats SA due on Wednesday will headline an otherwise data-sparse week, with economists expecting a temporary slowdown in July because of lower fuel prices, driven by hopes at the time of a resolution to the US-Iran war that have since been dented.

A year-on-year retreat in the consumer price index in July would snap a four-month upward trend that began in March, when inflation ticked up to 3.1% and climbed to 5% by June, propelled mainly by transport costs as global oil supply constraints linked to the war drove prices higher.

Inflation now sits well above the South African Reserve Bank’s (Sarb) 3% target, with a one-percentage-point tolerance in either direction.

South Africa is a net oil and petroleum products importer, and monthly domestic fuel price adjustments are therefore guided by international trends as well as the rand exchange rate.

In July, the prices of petrol and diesel dropped significantly, helped by a stronger rand and the reopening of the Strait of Hormuz — through which about one-fifth of global petroleum liquids consumption passes daily — which reduced fears of a prolonged disruption to global oil supplies and brought international oil prices down.

“We expect headline inflation to slow quite sharply, from 5% year on year in June to around 4.4%, largely reflecting a monthly decline in fuel prices,” Bureau for Economic Research analyst Tracey-Lee Solomon said.

“The improvement in the headline rate should therefore not be read as an equally broad-based easing in price pressures: core inflation is expected to remain sticky at just above 4%.”

Notably, crude oil futures climbed more than $1 a ​barrel on Friday , pushed up by lack of progress on a peace agreement between the US government and Iran’s leadership, Reuters reported.

The Sarb, which hiked interest rates in May before keeping them on hold in July, still sees upside risks to inflation linked to the conflict, expecting the headline number to persist above 4% until early next year.

Ahead of the inflation data, the department of small business development will kick off the economic week on Monday with an update from minister Stella Ndabeni on the implementation of the country’s Spaza Shop Support Fund.

President Cyril Ramaphosa announced the R500m facility in late 2024 in response to a wave of foodborne illness incidents, including the deaths of several children linked to unsafe food products sold through informal retail channels, including spaza shops.