South Africa: Inflation stable in May
Inflation came in at 5.2% in May, matching April’s reading. May’s figure represented the joint-lowest inflation rate since December 2023 and was in line with market expectations. Looking at the details of the release, the change in prices for housing and utilities was largely stable in May, while prices for food and non-alcoholic beverages were also broadly unchanged from the previous month.
Still, the trend pointed down, with annual average inflation falling to 5.3% in May (April: 5.4%). Meanwhile, core inflation was stable, coming in at April’s 4.6% in May.
Finally, consumer prices rose 0.17% in May over the previous month, slowing from April’s 0.26% increase. May’s result marked the weakest reading since January.
Our panelists expect inflation to remain largely unchanged from current levels in June and to cool only slightly in Q3. In Q4, the disinflation process should accelerate, with inflation projected to average just below the midpoint of the 3.0–6.0% target band of the South African Reserve Bank (SARB). Accordingly, the majority of our panelists expect the SARB to kick off its loosening cycle by Q4. Oil prices, the strength of the rand, changes in fiscal policy under the new administration and the timing and speed of interest rate cuts are factors to monitor. Extreme weather is an upside risk.
Oxford Economics’ Jee-A van der Linde commented:
“South Africa’s inflation outlook is improving but risks remain. Although the recent drop in South Africa’s inflation rate is welcomed, we still do not believe that it is sufficient to trigger early rate cuts.”