Good news for SA Reserve Bank interest rates

Lesetja Kganyago

Consumer price inflation (CPI) for May is expected to ease further, which could signal a break in the South African Reserve Bank’s (SARB) interest rate hiking cycle.

The SARB has been in a hiking cycle since November 2021 and has implemented a cumulative 475 basis points of hikes.

The hikes were implemented to bring South Africa’s high, sticky inflation back within the SARB’s target band of 3% to 6%.

Since the hiking cycle started, the SARB has remained steadfast to keep raising rates until inflation is back within its target range and anchored around the midpoint (4.5%).

The SARB’s efforts had been largely unsuccessful until recently – in April, South Africa’s annual inflation rate cooled for the first time in months. 

Annual CPI was 6.8% in April 2023, down from 7.1% in March 2023. April inflation was the lowest the country had seen since May 2022 and the first time the rate decreased month-on-month since January 2023.

Some experts believe this trend will continue when May’s inflation data is released later this week.

Absa forecasts headline CPI to print at 6.4% year-on-year, mainly reflecting lower fuel and food inflation. 

Food and fuel inflation have been the two largest drivers of South Africa’s high inflation over the past few months, with food inflation reaching decade-high levels.

Absa expects a marked slowdown in food and non-alcoholic beverage inflation to 12.4% year-on-year in May. This would be a notable slowdown from the 13.9% recorded in April.

Absa attributes this optimistic prediction to a strong base effect created by the 2.1% month-on-month jump in prices last May. 

However, Absa expects core CPI to have remained unchanged at 5.3%, though it sees some upside to this given the recent upward momentum in core goods inflation.

The Bureau for Economic Research (BER) shared Absa’s prediction for May’s inflation data, expecting annual CPI to slow to 6.4%.

The BER said the annual increase in food prices would start to be muted by the high base of 2022. It, therefore, expects a 0.7% month-on-month rise in food prices but an easing in the year-on-year rate to 12% from close to 14% in April. 

“As has been the case for a while, the annual rise in the petrol component will also be depressed by last year’s high base,” said the BER.

However, it said headline CPI is projected to increase by 0.2% month-on-month.

In addition to easing inflation, the US Federal Reserve decided to leave its policy rate unchanged at its latest meeting, which could influence the SARB’s interest rate decision come July.


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