South African Reserve Bank file photo
JOHANNESBURG - Consumer price inflation (CPI) decelerated to 4percent year-on-year in February, surpassing estimates and shifting the focus to the SA Reserve Bank’s Monetary Policy Committee (MPC) meeting next week.

Data from Statistics South Africa (StatsSA) on Tuesday showed that the CPI eased from 4.4percent in January as lower petrol prices assisted in beating the market consensus of 4.2percent.

Sanisha Packirisamy, an economist at Momentum Investments, said the favourable inflation trajectory left room for modest monetary policy easing in upcoming months.

“As such, Momentum sees space for one interest rate decrease of 25 basis points at the March interest-rate-setting meeting, with the possibility of a further 25 basis point cut in May should conditions remain favourable,” Packirisamy said.

In January, the central bank updated its headline inflation assumption for 2018 to 4.9percent from a prior estimate of 5.2percent and from 5.5percent to 5.4percent for next year. However, economists warned that the multiple tax increases set to kick in next month would impact the inflation outlook for the remainder of the year.

Investec chief economist Annabel Bishop said the lower CPI inflation outcome would not necessarily signal lower interest rates at the South African Reserve Bank (Sarb).

“CPI inflation is likely to average around 5.5percent for next year, and over the longer term and so the Sarb is unlikely to cut interest rates on this basis. Little is currently being signalled for petrol price relief in April, which is also the month when multiple tax increases kick in,” Bishop said.

“Specifically, a 1percent VAT increase will take place from April 1, which will add about 0.5percent year-on-year to the CPI inflation rate for the rest of 2018, bringing it up to around 5percent year-on-year for the 2018 year as a whole.”

On a monthly basis, consumer prices rose 0.8percent, compared to a 0.3percent increase in January, but below market expectations of a 0.9percent gain.

The easing of the inflation rate was on the back of food price inflation, which fell from 4.6percent year-on-year to 4percent year-on-year. Food price inflation accounts for a hefty 15.5percent of the total CPI and so has a substantial impact on the outcome of targeted inflation.


The annual core inflation rate, which excludes the cost of food, non-alcoholic beverages, petrol and energy was unchanged at 4.1percent in February, remaining at its lowest level since December 2011.

The MPC is expected to announce its interest rate decision next Wednesday. The market consensus is currently of a 25 basis point cut to 6.5percent from the current 6.75percent.

John Ashbourne, an Africa economist at Capital Economics, said the pending VAT hikes and a widening current account deficit would cause policymakers to probably hold off an interest cut for now.