Globally, the negotiations between the US and Iran towards a lasting agreement began in Switzerland over the weekend, while locally the CPI for May undershot expectations.
International Market Developments
Negotiations between the US and Iran towards a lasting agreement began in Switzerland over the weekend. The talks aimed to build on the Memorandum of Understanding (MoU) signed last week that extended a fragile ceasefire and set a 60-day window for reaching a final settlement. The situation remains fluid with President Trump issuing new threats of military action against Iran over its support for Hezbollah in Lebanon and Iran announcing it had again restricted traffic through the Strait of Hormuz, citing alleged ceasefire violations. On a positive note, the US lifted its naval blockade on Iran, allowing oil shipments and commercial shipping to resume, easing pressure on global energy markets. Discussions are expected to continue this week.
UK CPI for May undershot expectations, coming in lower at 2.8% y/y, matching April’s increase. On a m/m basis, CPI increased by 0.2%, also below expectations, after increasing by 0.7% in April. Core CPI came in lower than expected in May, at 2.6% y/y, following a 2.5% y/y increase in April. Transport costs, driven by higher fuel prices and airfares, made the largest positive contribution to both the annual and monthly changes. Food and non-alcoholic beverages exerted a meaningful offset as price growth in this category slowed.
Last week’s FOMC decision saw the Committee maintain a steady stance on policy, in what was Kevin Warsh’s first meeting as Fed Chair. However, whilst the Fed funds target range was held at 3.50-3.75%, as expected, financial markets have taken the broad message as being decidedly hawkish with the new Chair pledging to restore price stability, with 9 of the 18 FOMC members expecting at least one policy rate hike this year.
Local Market Developments
Locally, CPI for May undershot expectations, coming in at 4.5% y/y (against expectations for a 4.7% y/y increase), from 4.0% y/y in April. On a m/m basis, CPI increased by 0.7% in May, after having increased by 1.1% in April. Core inflation came in lower than expected in May, at 3.8% y/y, up from 3.6% y/y in April. The data supports the case for the SARB to keep the repo rate unchanged at the MPC meeting in July.
Last week, President Ramaphosa highlighted the persistent challenge of youth unemployment in SA. He noted that, although democracy has expanded access to education, many young people continue to struggle to translate qualifications into jobs. He stressed that faster and more inclusive economic growth, supported by infrastructure investment, structural reforms and rising investment commitments, is essential to sustainably address joblessness.