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CPI eases to 13-month low paving way for SARB to keep rates on ice

While inflation is beginning to show clear signs of abating, it is still hovering above the SA Reserve Bank’s target band. Photo: Ayanda Ndamane/ African News Agency(ANA)

While inflation is beginning to show clear signs of abating, it is still hovering above the SA Reserve Bank’s target band. Photo: Ayanda Ndamane/ African News Agency(ANA)

Published Jun 22, 2023


In the midst of all the doom and gloom facing the South African economy, a small ray of hope was revealed yesterday when the consumer price index (CPI) for May slowed to 6.3% from 6.8% in April, which economists said pointed to flat interest rates for the remainder of this year.

This is the lowest reading since April 2022 when the rate was 5.9%.

At a time for consumers battling the cost of living crisis in the country, with high interest rates, see-sawing fuel prices month on month and the economy being hit hard by Eskom’s load shedding, the reprieve will be welcomed.

Stats SA said that the CPI increased by 0.2% month-on-month in May. The main contributors to the 6.3% annual inflation rate were food and non-alcoholic beverages, which increased by 11.8% year-on-year. Housing and utilities increased by 4.0% year-on-year. Transport increased by 7.0% year-on-year; while miscellaneous goods and services rose by 6.3% year-on-year.

In May the annual inflation rate of goods was 8.0%, down from 9.0% in April; and for services was 4.7%, unchanged from 4.7% in April.

Casey Delport, an investment analyst of fixed income at Anchor Capital, said the CPI had eased more than expected.

Delport said food and non-alcoholic beverages, one of the key upward drivers of inflation over the previous few months, came in significantly lower than expected – at 11.8% year on year (y/y) for May from April’s 13.9% y/y print.

This latest decrease in local food prices was driven by the strong base effect created by the 2.1% month on month jump in prices in May and the continued moderation in global food prices.

However, the moderation in global food prices was taking longer to filter through to the local market as South Africa’s rand depreciation has offset much of this global decline.

Delport said, “Looking ahead, while inflation is beginning to show clear signs of abating, it is still hovering above the SA Reserve Bank’s (SARB) target band of 3%-6%, and food price inflation is still in the double digits. In addition, SA’s energy crisis, which has worsened this year, is weighing heavily on the country’s already strained economy, presenting more inflationary risks.”

Adriaan Pask, the chief investment officer at PSG Wealth, said the current data showed that the SARB prediction of inflation slowing in the second half of this year was on track.

Pask said, “While local inflation is still above the upper limit of SARB’s target range of between 3% to 6%, we expected it to start decreasing as the SARB hiked interest rates to combat high inflation. According to SARB’s monetary policy review, the country’s inflation levels should reach the target range in the second half of this year, and current data does support this expectation.

“We remain watchful of the impact of fluctuations in inflation and interest rates on shares exposed to substantial discount-rate risk over this period and we will continue to adjust our products accordingly,” he said.

The next CPI data is due to be released on July 19 with the Reserve Bank set to announce its decision on interest rates in the country a few days later.

Investec’s chief economist, Annabel Bishop, said, “We expect flat interest rates for the remainder of this year, and a cut only in 2024. Looking forward, South Africa’s financial markets, as indicated by the FRA (Forward Rate Agreement) curve, have factored in one more 25bp hike in the current interest rate cycle, at year end, but we think this is currently unlikely and that SA has reached its terminal interest rate in the current cycle.”

Frank Blackmore, the lead economist at KPMG told Business Report that if inflation reached the SARB’s target range, it could be expected that the country would not see more interest rate hikes later this year.

Blackmore said, “Given the numbers and the reduction we witnessed, if this continues till year end, we will be in a position to reduce interest rates at the November MPC (Monetary Policy Committee) meeting. Saying that, inflation still remains high for food, at 12% with processed food increasing by 13.6% which remains high, relative to other goods in the basket.”