Relief for consumers is not good news for the economy

This is according to data from Statistics South Africa. 

But this could be because of declining domestic demand, which reflected a still weak local economy, economists said.

According to consumer price index (CPI) figures released this week, inflation is back in the Reserve Bank’s target range of between 3% and 6%. But economists dismissed speculation that the bank might cut interest rates – unless economic conditions in Europe or South Africa deteriorated markedly.

Overall food prices moderated to 6.8% on an annual basis, well below the peak of 11.6% in November last year, according to a research note by Stanlib economist Kevin Lings.

The price of fruit fell by 2.7% between April and May, meat by 1%, oils and fats by 0.8%, vegetables by 0.7% and hot beverages by 0.3%, according to Stats SA.

The main contributor to the increase in inflation in May was the 2.4% month-on-month increase in the petrol price, Lings said, because of the 28c a litre hike in the price at the beginning of May. The price had since fallen by “a very welcome 55c” a litre in June.

“There is currently a massive daily overrecovery on the petrol price of 86c a litre and an average overrecovery for the month to date of 70c a litre,” he said.

He expected the price to fall by about 70c to 75c a litre at the beginning of July. Petrol prices increased by 19.4% year on year. Peter Attard Montalto, an economist at Nomura, said this could result in inflation dropping to 5%.

But Nedbank economist Johannes Khosa said inflation’s return to the Reserve Bank’s target range indicated a weaker local economy.

“The more subdued trend is probably reflecting a weaker economy, which is translating into softer domestic demand, thereby forcing retailers to discount.”

This could have contributed to downward pressure on food inflation, he said.

Lings noted that core inflation – CPI excluding food, fuel and electricity – edged lower to 4.4% year on year from 4.5% in April, whereas services inflation remained unchanged at 5.9%. But inflation risks remained, notably from administered prices such as electricity and water, as well as currency weakness.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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