The pace of an increase in South Africa's consumer food prices continues to slow. (Waldo Swiegers/Getty Images)
South Africa’s annual inflation rate eased considerably in May, because of lower food and fuel prices.
According to data released by Statistics South Africa on Wednesday, headline inflation dropped to 6.3% year-on-year, down from 6.8% in April — marking the lowest level in more than a year. Economists were expecting inflation to ease again, given the slowdown in food and petrol prices.
The StatsSA data shows that the annual rate for food and non-alcoholic beverages was 11.8% in May, down from the 13.9% recorded in April. The price index for this category increased by 0.3% from April to May, the lowest monthly reading since November 2021.
But prices remain uncomfortably high. The inflation rate has held above the ceiling of the South African Reserve Bank’s 3% and 6% target range for 12 consecutive months. And despite having peaked in July last year, prices have proven sticky — probably a result of local factors such as load-shedding and the rand’s weakness.
Still sticky inflation prompted the Reserve Bank to raise the country’s borrowing rate by 50 basis points for two monetary policy committee (MPC) meetings in a row. This was in the face of meagre economic growth in the first quarter of the year as well as a slight uptick in the country’s already high unemployment rate. The latest hike in May officially landed South Africa’s monetary policy in restrictive territory.
Since the central bank’s last MPC decision — which saw the rand dip even lower as the market responded to the unanimous 50 basis-point rate increase — the local currency has regained ground, boosted by a weaker United States dollar and the easing of concerns about rolling power cuts.
The US dollar index has fallen about 1.7% since the start of June, according to investment banking company UBS. This is amid renewed hopes that the US Federal Reserve is nearing the end of its hiking cycle.
Last week, the Fed left its policy rate unchanged, breaking a streak of 10 consecutive hikes, but left open the prospect of further hikes.
In its statement, the federal open market committee said: “Holding the target range steady allows the committee to assess additional information and its implications for monetary policy … In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook.”
The local MPC meets again in July, when it will decide whether to inflict further aggressive repo rate hikes or to slow down its hiking cycle. In the wake of its May decision, economists did not rule out further hikes, but said this would depend on the course of load-shedding and the rand’s behaviour.