Record UK inflation sends JSE reeling

The JSE reversed Tuesday’s gains as investors once again turned their attention to inflation, the prospect of further aggressive interest rate hikes and their effect on the global economy.

Consumer prices in the UK rose by 9% last month, the highest in 40 years, adding pressure on the Bank of England to act decisively and prompting a decline of 1.07% in London’s FTSE 100.

Economists surveyed by Bloomberg had expected an inflation reading of 9.1%,

In the US overnight, Federal Reserve chair Jerome Powell reiterated his commitment to inflation, saying “no-one should doubt” the Fed’s mission to calm prices.

“The rebound in the markets ran out of steam as inflation data once again offered a reminder of the struggles that lie ahead,” Oanda senior market analyst Craig Erlam said.

“And then there are the gloomy forecasts from central banks, with even the Fed now targeting a softish landing [for the economy] which feels very much like the stage before a mild recession.

“It may be time to buckle up and prepare for a very bumpy year.”

The JSE closed 0.88% weaker at 69,083 points while the top 40 slid 0.97%.

Banks bucked the trend, rising 1.28%.

Annual CPI held steady at 5.9% last month, but it is still the 12th consecutive month that inflation has been higher than the midpoint of the Reserve Bank ’ s 3%-6% target.

The last time prices were above the band was in March 2017, at 6.1%.

The Reserve Bank’s Monetary Policy Committee will announce its interest rate decision today, with markets already pricing in a 50 basispoint hike in the benchmark repo rate.

Old Mutual Investment Group chief economist, Johann Els is of the view that the Bank should raise the repo rate by only 25 basis-point increments in the current cycle, but said an increase of 50 basis points was likely.

“If the SARB hikes by 50 bps, it will be more as a result of the desire to front-load — there is just one MPC meeting in the second quarter of 2022 — than a reaction to the Fed or a sudden more aggressive policy stance,” he said.