Statistics South Africa data released on Wednesday showed that the CPI annual rate was 5.1% in June compared with 5.2% in May
Inflation eased for the second consecutive month in December.
According to data from Statistics South Africa, annual consumer price inflation pulled back to 5.1% from 5.5% in November and 5.9% in October, respectively. The December print brings the annual inflation rate for 2023 to 6% — far lower than the 6.9% recorded in 2022.
Inflation was once again driven by food prices, which increased by 8.5% year-on-year. But there was considerable easing in this category compared to November, when food inflation rose by 9% year-on-year.
Core inflation — which excludes food and fuel prices, both vulnerable to external shocks — held steady, increasing 4.5% year-on-year.
Most economists were expecting lower inflation in December, but the actual number is somewhat lower than forecasts, which ranged between 5.2% and 5.3%.
Prior to Wednesday’s data, most agreed that the South African Reserve Bank would keep interest rates unchanged at their current 15-year highs after its monetary policy committee (MPC) meets this week.
Investec economist Lara Hodes noted the Reserve Bank’s determination to bring inflation sustainably to the midpoint of its 3% to 6% target range. Hodes also flagged that inflation could rise 5.8% year-on-year in January, which would be a considerable increase against the December number.
Nedbank’s economists have pencilled in an initial 25 basis point cut in May. Based on the bank’s forecast, the repo rate will slow to 7.25% by the end of the year — down from 8.25% currently.
“While the cuts in the repo rate will provide much-needed financial relief, interest rates will remain restrictive, trending about 100 bps above pre-pandemic levels,” Nedbank’s economists said in a research note.
After the release of the December print, Investec’s chief economist Annabel Bishop said the MPC will probably maintain a hawkish tilt “although on balance is expected to keep interest rates unchanged”.
Bishop noted that the committee forecast that inflation will average 5% year-on-year this year “and today’s figure is unlikely to change its 2024 view”.