Last week, the US core PCE Index increased from 3.8% to 4.1%, the highest rate in three years. Locally, SA producer price inflation increased for the third month to 7.8% in May, from April’s 4.8% and marking the steepest increase since April 2023.
International Market Developments
Last week, the US core PCE Index, which is the Federal Reserve’s preferred inflation measure rose 0.4%. The increase aligns with expectations and brings the year-ago rate from 3.8% to 4.1%, the highest rate in three years. Energy was the primary culprit for May’s hot print, rising 4% from the month before. Food inflation was mild. Core personal consumption expenditure, excluding food and energy, rose 0.3%. The increase lifted the year-ago rate from 3.3% to 3.4%. At an annualized three- and six-month moving average, core PCE inflation was 3.5% and 4.1%, respectively, in May.
The US economy expanded an annualized 2.1% in Q1 2026, revised up from 1.6% in the second estimate, and above 0.5% in Q4 2025. The contribution from net trade was less negative than initially estimated (-0.37 pp vs -1.25 pp), as imports growth was revised lower (11.8% vs 21.1%) and exports rose 10.9% (vs 13.1%). In addition, gross private domestic investment increased 7.9%, higher than 7% in the previous estimate. Business investment in equipment surged 15.8% (vs 17.2%), and spending on intellectual property products went up 13.8% (vs 11.6%). In contrast, investment in structures fell 4.7% (vs -5.4%), and residential declined 7.8% (vs -6.2%). Meanwhile, consumer spending rose 0.5%, well below 1.4% previously reported, led by a big slowdown in services demand (0.5% vs 1.8%) while goods remained subdued (0.5% vs 0.4%). Government spending was up 4.4%, in line with the previous estimate, recovering from a 5.6% contraction, as activity resumed following the end of the government shutdown.
Looking ahead, US non-farm payrolls data is due for release on Thursday.
Local Market Developments
Producer price inflation in South Africa quickened for the third month to 7.8% in May, from April’s 4.8% and marking the steepest increase since April 2023. The increase was mainly driven by coke, petroleum, chemical, rubber and plastic products, which surged 22.1% on higher fuel prices, including diesel (+66.7%) and petrol (+28.1%). Other key contributors included paper and printed products (+8.7%); food, beverages and tobacco (+2.1%); and metals, machinery and equipment (+2.9%). On a monthly basis, the CPI advanced by 2.6%, following a 3% surge in the previous month.
The FNB/BER Consumer Confidence Index for South Africa plummeted to -19 in Q2 2026 from -7 in the previous period, marking the lowest since Q1 2025. The decline reflected weaker spending intentions as soaring fuel costs linked to the Middle East conflict strained household budgets, especially among middle- and high-income groups. All three sub-indices declined, with the economic outlook sub-index slipping to -32 points from -14, while the household finances index dropped to zero from 12. FNB Chief Economist Mamello Matikinca-Ngwenya also noted some impact from the recent rate hike by the South African Reserve Bank, which could further weigh on sentiment in coming months.
Looking ahead, South Africa’s one-year-ahead inflation expectations are due for release by the Bureau for Economic Research (BER) on Tuesday.