Last week, the FOMC released minutes from its July meeting, which suggested that inflation risks outweigh job growth concerns. Locally, CPI for July came in as expected at 3.5% year on year up from 3.0% in June, reducing the case for the SARB to continue with its rate-cutting cycle at the next MPC meeting.
International Market Developments
Last week, the Federal Open Market Committee (FOMC) released the meeting minutes from its July meeting. At the meeting, the Federal Reserve had kept the federal funds rate unchanged at 4.25%–4.5%, balancing strong second-quarter growth against broader signs of slowing activity in the first half of the year. Inflation remained above the 2% target, and although the labour market softened, uncertainty around both the price and growth outlook led policymakers to maintain a cautious stance.
The minutes of the meeting added depth, stressing that tariffs were the main inflation risk. Much of Q2’s growth reflected firms front-loading imports ahead of tariff increases, which temporarily boosted activity. While companies had initially absorbed higher costs, participants warned that these would increasingly be passed on to consumers, keeping inflation sticky. Labour market dynamics showed declining dynamism: weaker hiring, limited layoffs, slower wage growth for job switchers, concentrated job creation, and reduced immigration. While the market remained resilient, vulnerabilities were emerging. The overall tone was cautious, though dissent emerged. Michelle Bowman and Christopher Waller argued for a 25 basis point cut, believing tariff effects distorted inflation and warning that delaying easing could harm employment.
Looking ahead, US core PCE price index, which excludes volatile and energy prices and is the Federal Reserve’s chosen gauge of underlying inflation, is due for release on Friday.
Local Market Developments
Last week, South Africa’s headline consumer price inflation (CPI) accelerated to 3.5% year on year in July, from 3.0% in June. The outcome was broadly aligned with consensus. The main drivers were food & non-alcoholic beverages (+5.7% y-o-y, adding 1.0%pt to the headline) and housing & utilities (+4.3%, 1.0%pt), with the latter boosted by annual municipal tariff hikes for electricity and water. Transport prices fell again (-1.7% year on year), though the decline was much shallower than June’s -3.3%, as the drag from fuel prices eased (-5.5% vs. -11.2%). On a monthly basis, CPI jumped 0.9% (after 0.3% in June), reflecting both administered price adjustments and firmer food inflation. Core CPI, which excludes food and energy prices, ticked up marginally to 3.0% year on year in July, underscoring still-muted underlying price pressures despite the headline lift.
Looking ahead, the July Producer Price Index (PPI) data is due on Thursday. PPI is expected to come in at 1.5% year on year, after having increased by 0.6% year on year in June. The July trade balance is scheduled for release on Friday; a trade surplus of R22.0bn in June was reported, from R20bn in May.