Still-sticky inflation could further delay long-awaited interest rate cuts
After two consecutive declines, inflation did not budge in May — coming in at 5.2% year-on-year.
It was widely expected that inflation would hold steady during the month amid continued upward pressure from food and fuel prices.
According to Statistics South Africa’s data, the annual rates for four of the 12 product groups remained steady between April and May, including food and non-alcoholic beverages, which had previously seen five consecutive declines.
The transport category accelerated to its highest rate since October 2023, thanks in large part to fuel price increases. Petrol and diesel prices have increased by 9.3% on average over the past 12 months, according to StatsSA.
After five consecutive petrol hikes, motorists enjoyed some relief in June after all fuel grades experienced a considerable drop in prices, a development which could help ease inflation during the month.
The South African Reserve Bank’s monetary policy committee (MPC) held the repo rate at 8.25% — the highest level since 2009 — after its last meeting in May.
The Reserve Bank aims to keep inflation towards the midpoint of its 3% to 6% target range. At 5.2%, inflation is still in the upper end of this range.
The MPC now expects that inflation will fall to 4.5% in the second quarter of next year. This, as well as elevated inflation expectations, could delay interest rate cuts.
Commenting on the May data, Investec chief economist Annabel Bishop noted that still-sticky inflation “will likely keep the Reserve Bank’s tone hawkish in any near term remarks”.
