SA CPI unchanged at 5.2% in May, but rising rand raises hopes for falling inflation

South Africa’s inflation has been moderating, but at a moderate pace. 

The CPI data released on Wednesday by Statistics South Africa showed the headline number unchanged in May from April at 5.2% year on year. But it was 6.3% in May last year and 5.6% in February this year.

So it is slowing, but not at a pace that will prompt the South African Reserve Bank to cut rates anytime soon — expectations among economists are most likely not before November — as the bank wants CPI firmly anchored in the midpoint of its target range of 3% to 6%.

One trend that will help to hasten the trajectory towards that target is the performance this week of the rand, which rallied on Wednesday to over 10-month highs below 18/dlr, lifted by renewed economic optimism around the formation of the government of national unity (GNU).  

Read more in Daily Maverick: Rand rallies to over 10-month highs past R18/dlr on GNUphoria 

If the domestic currency can hold or extend these gains in the coming weeks and months it will curb import price pressures, notably for oil, which should help to contain or bring retail fuel and transportation prices down. 

But while the rand’s rally is welcome on this front, no significant slowing of inflation is seen on the immediate horizon — though things would have been much worse had the rand collapsed in the wake of the election result.

“We should see headline inflation continue its plateau in June. Monthly pressure should remain subdued, as higher core inflation, supported by new data on housing price pressures, is mitigated by fuel deflation. Food pressures should intensify as the impact of adverse weather conditions and higher soft commodity prices reaches retail shelves,” Koketso Mano, FNB senior economist, said in a note on the data. 

“Nevertheless, slowing global inflation, softer oil prices, a less depreciated rand, and subdued domestic demand should support slowing inflation going into 2025. In line with this, headline inflation should average just above 5% this year.” 

As Mano noted, domestic demand remains subdued, a point underscored by another data release on Wednesday for retail trade sales, which showed they rose by a muted 0.6% in April year on year after rising by 2.3% in March. 

Elevated interest rates are among the many constraints South African consumers face, and with little prospect of a cut before November, demand is likely to remain weak for some time. DM