Last week, annual US headline consumer inflation increased to 2.9% in August, up from 2.7% in July. This was the fastest increase since January. Locally, according to Stats SA, real GDP expanded by 0.8% quarter on quarter in 2025Q2, following an unrevised growth of 0.1% in 2025Q1.
International Market Developments
Last week, US CPI for August rose in line with expectations to 2.9% year on year, up from 2.7% in July, while month on month CPI increased 0.4%, slightly above forecasts and July’s 0.2% rise. Core CPI held steady at 3.1% year on year and 0.3% month on month, matching July’s figures. The print signals a still-sticky but contained inflation backdrop. Combined with weaker-than-expected labour market data, the release sharpens the Fed’s internal debate over the timing and pace of monetary easing. Markets viewed the inflation print as supportive of the Fed resuming rate cuts at this week’s FOMC meeting, reinforcing expectations of a gradual, data-dependent policy trajectory.
Over in Europe, the European Central Bank (ECB) kept its benchmark policy rate unchanged at 2% for a second consecutive meeting, a decision that was widely anticipated by markets. Since the June assessment, the overall economic outlook has seen little change, with growth momentum remaining subdued and inflation holding close to the ECB’s medium-term target of 2%. However, the August inflation print surprised slightly to the upside at 2.1% year on year, leading to a modest upward revision of the inflation outlook. In its accompanying statement, the ECB emphasised that the inflation path “remains more uncertain than usual,” underscoring its cautious stance. Policymakers reaffirmed that future policy decisions will remain highly data-dependent, balancing inflation risks against growth dynamics.
Looking ahead, the US FOMC will meet on Wednesday and is widely expected to lower the Fed funds rate by 25 basis points.
Local Market Developments
South Africa’s economy grew faster than expected in Q2:25, with GDP expanding 0.8% quarter on quarter, the strongest pace in two years, after 0.1% growth in Q1:25. On an annual basis, growth eased slightly to 0.6% year on year from 0.8% previously. Eight industries contributed positively, led by manufacturing (+1.8% quarter on quarter) and trade (+1.7% quarter on quarter), each adding 0.2 percentage points to growth, while mining also contributed 0.2%. Household consumption rose 0.8% quarter on quarter, boosting growth by 0.6 percentage points, while net exports and gross fixed capital formation detracted.
Looking ahead, the MPC is scheduled to meet for its rate decision making on Thursday. We expect the committee to keep the repo rate on hold at 7%.