South Africa: Further Good News on the Inflation

Earlier this week we received further welcome news on our inflation data, where both headline and core inflation surprised to the downside (relative to consensus) in July. Headline inflation came down from 5,4% the previous month, to 4,7%, while core inflation dropped from 5,0% the previous month to 4,7%.

Inflation data is essential not only for consumers but also for investors where lower inflation is usually accompanied by better results for the investment markets and risk assets of shares, bonds and property.

In detail, food inflation which has been most stubborn until now, eased further – from 11,1% in June to 10,0% in July.

Attached, is the views from the Old Mutual Investment Group (OMIG) chief economist Johan Els where he notes;

“The core inflation number is especially good news as it is markedly lower than the Reserve Bank’s forecast. While they do not publish monthly forecasts, their Q3 core inflation forecast is 5.4%.

With a Q3 start of 4,7% in July, core inflation needs to average 5,8% in August and September to reach their 5,4% Q3 average forecast. This is highly unlikely (to be this high) given what we already know of pipeline prices. The MPC will thus see a sharp cut in the Bank’s core inflation forecast when they meet in September.

This reinforces my view that there will not be any further rate hikes in this cycle – despite risks around rand and oil prices. Rates will likely remain unchanged until a first cut in Q1 2024”.

Personal Finance | Does paying extra on your car finance make a difference? Yes, it does!

In a recent article on News 24, a reader asked a question many of my clients have asked me as well and City Press answered it in detail below.

MIKE ASKED:

I have been told that making higher payments towards car finance will not make a difference because I’ll still be liable to pay the initial interest amount agreed upon.

Is this true?

CITY PRESS REPLIES:

This is not correct. There is often confusion around the original quote provided by the bank and what your obligations are.

The quote is purely an illustration of the total cost based on the interest rate at the time and the agreed repayment period. A change in interest rates, for example, would affect those figures as well as paying off your loan sooner.

According to Absa, making additional payments to your principal debt does make a difference in reducing the interest that you are liable for in the future. You can even decide how to allocate those additional payments.

• You can also choose to reduce your balloon payment (if you have one);

• Reduce your monthly instalment; or

• Reduce the term of the loan.

It is important to note that if a customer makes additional payments on their vehicle loan account, they would need to formally communicate with the bank how the additional payments should be applied to their account – either to reduce their balloon payment (if applicable), reduce their monthly instalment or the remaining term of the agreement.

READ: The 12-month financial plan

The National Credit Act states that a credit provider (the bank), must credit each payment made by a customer firstly, to satisfy any due or unpaid interest charges, and secondly, to settle any due or unpaid charges.

Thereafter, the payments are allocated towards the principal debt. This is particularly important to note in cases where accounts are in arrears.

FRIDAY FOOD FOR THOUGHT