The CPI data, unveiled on Wednesday by Statistics South Africa (Stats SA), is a sign that the South African Reserve Bank’s (Sarb) aggressive tightening cycle is paying dividends. It has been relentless in its quest to contain inflation, which has seen it raise rates by 475 basis points since November 2021, taking its key repo rate to 8.25% and the prime lending rate to 11.75%.

This does not mean the Sarb will hit the pause button on Thursday when its Monetary Policy Committee (MPC) renders its next rate decision.

Analysts polled by Bloomberg from 7 to 12 July were divided about the prospects of the MPC holding or hiking again, with half of the 16 surveyed falling into one camp or the other. Their forecasts were made on expectations that the June CPI read was likely to fall within the Sarb’s mandated target range.

Read more in Daily Maverick: Will the Reserve Bank hike rates again on Thursday? Analysts are divided

Read more in Daily Maverick: Analysts less sure than a month ago that South Africa will hold rates

Inflation is moving in the right direction, and a pause by the US Federal Reserve in its hiking cycle in June gives the MPC some breathing space to hold. 

The Sarb needs to maintain a gap with the key US rate, currently between 5.0% and 5.25%, to keep the rand attractive to investors. But it has also admitted that it can only do so much on that front.

One point worth keeping in mind is that while the Sarb will see vindication in June’s inflation data for its policy stance to date, the MPC is not easily swayed by what happened the previous month. Its focus is on the road ahead, not the rear-view mirror.

“Above-target inflation expectations over the period to 2025, as well as funding risks related to a widening current account deficit amid tighter global financial conditions, should result in the MPC delivering another 25 basis point hike at their upcoming meeting,” Koketso Mano, FNB Senior Economist, said in a note on the data. 

On some fronts, inflation remains sticky. Food inflation in June slowed to 11.1% from 12% in May, but that is still a biting level, especially for lower-income households.

There are renewed concerns about global food prices – which will filter through the pipeline to South Africa, despite a stout maize harvest – after Russia halted the Black Sea grain deal. 

Read more in Daily Maverick: Russia’s decision to end Black Sea grain deal puts global food security at risk.

Meanwhile, South African consumers are not splurging, which is also food for MPC thought.

Stats SA data on Wednesday also showed that retail trade sales fell 1.4% year-on-year in May, the ninth consecutive month of annual decline. That is a clear indicator that consumers are being squeezed by rising interest rates and still elevated inflation against the backdrop of an economy that is barely growing and saddled with an unemployment rate of almost 33%.

One green shoot was the BankservAfrica Economic Transactions Index for June, also published on Wednesday. This is a measure of transactions between South African banks. It ticked up to 133.6 compared to 132.3 in May – the highest level since July 2022.

BankservAfrica attributed this in part to the reduction in rolling power cuts in June and the slowing of consumer inflation in the month to below 6.0%.

The Sarb’s tightening is not completely throttling economic activity, as some critics fear, and it is anchoring inflation expectations lower, which the bank sees as crucial for economic growth in the longer run.

After 3pm on Thursday, we’ll know if the factors outlined above – and others – sway it to hold for now or hike again. DM