SA Inflation beats but rand price could be set to weaken further
An improved rate of food inflation has helped local CPI soften more than expected, although ZAR remains vulnerable.
Recent data on annual consumer price inflation (CPI) for May 2023, paints a picture of subtle shifts in the market. The inflation rate dipped to 6.3% in May 2023, down from 6.8% in April 2023. Meanwhile, the consumer price index rose by 0.2% month-on-month in May 2023.
The primary contributors to the 6.3% annual inflation rate were diverse sectors, including food and non-alcoholic beverages, housing and utilities, transport, and miscellaneous goods and services.
For instance, food and non-alcoholic beverage stocks surged by 11.8% year-on-year, adding 2.1 percentage points to the inflation rate. Meanwhile, housing and utility saw a more modest increase of 4.0% year-on-year, adding a single percentage point to the overall rate. Transport stocks accelerated by 7.0% year-on-year, also contributing a percentage point, and miscellaneous goods and services inflated by 6.3% year-on-year, adding 0.9 of a percentage point.
These figures reveal that the annual inflation rate of goods slipped to 8.0% in May 2023, down from 9.0% in April 2023. In contrast, the rate for services remained steady at 4.7% in both April and May.
Core inflation, which excludes food and energy from the headline basket, improved marginally from 5.3% previously to 5.2% y/y in May 2023.
The data was all ahead of consensus and marked a welcome improvement in food inflation (albeit still high), a primary driver of the elevated CPI data we have been seeing.
USD/ZAR
The reaction in the rand has been relatively muted as it remains paused around the R18.40/$ level today.
The USD/ZAR remains in a long-term uptrend (dollar strength / rand weakness) as the price trades within the upward channel and firmly above the 200-day simple moving average (200MA) (blue line).
The short-term pullback appears to have support and now looks to be reversing off the R18.15/$ level. The reversal is accompanied by an oversold signal.
A close above R18.40/$ would suggest R18.70/$ and R19/$ as upside resistance targets from the move. A close below the R18.15/$ level would suggest the reversal and longer-term trend continuation to be failing.
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