At 4.8%, the June Producer Price Index (PPI) read fell well short of Bloomberg consensus expectations of 5.8%. Pointedly, food product inflation slowed to 8.0% from 8.8% in May. And on a monthly basis, PPI fell by 0.3%, pulled down by a 1.6% month-on-month decrease in coke, petroleum, chemical, rubber and plastic products. 

This was the lowest PPI read since February 2021, when it was 4.0%. It accelerated sharply from there, reaching 18.0% in July last year. 

Following in the wake of consumer price data last week which showed that CPI braked to 5.4% in June — falling within the SA Reserve Bank’s 3%-6% target range for the first time in 14 months — from 6.3% in May, the PPI number provides the central bank with further space to keep holding rates steady. 

The SA Reserve Bank last week kept its key repo rate unchanged at 8.25% and the prime lending rate at 11.75% — after 475 basis points worth of hikes since November 2021 — and if inflation keeps slowing, it will have little reason to hike again. 

Read more in Daily Maverick: SA Reserve Bank holds rates steady, but Kganyago’s finger remains on the hiking trigger 

“Have interest rates peaked? The answer is a resounding no,” SA Reserve Bank Governor Lesetja Kganyago warned last week. But further hikes would almost certainly only be triggered by inflation remaining stubbornly at current levels or picking up pace again. 

The current inflation trajectory is clearly downward — which one would expect in a barely growing economy with an unemployment rate of almost 33% — but price pressures still lurk in the pipeline. 

For one thing, the Fed raised US rates again this week by 25 basis points, taking them to a 22-year high. This could pressure the SA Reserve Bank to do the same if the rand weakens as a result, but this week it has generally held its recent gains below 18/dollar. 

On the food price front, Russia’s torpedoing of the Black Sea grain deal and subsequent bombing of grain terminals in the port of Odesa have lit a fresh match under global food prices. 

South Africa is currently harvesting its second-biggest maize harvest — 16.4 million tonnes. This will clearly help to contain domestic food prices, but the El Niño weather pattern could herald scorching droughts in the next summer grain season. 

Brent crude, the global benchmark for oil prices, hit three-month highs of more than $84 a barrel on Thursday on production cuts by the Opec+ cartel and a brightening outlook for global economic growth. 

A sustained rally in oil or global food prices — or renewed weakness in the rand — would reignite South African consumer and producer inflation. 

At least for now, the rand is holding its gains and inflation — which erodes the incomes and wealth of most South Africans — is slowing. A cold front may hit South Africa this weekend, but spring is also in the air. DM