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SA inflation decelerates to 6.1 percent in May

Xinhua, June 23, 2016 Adjust font size:

South Africa inflation, as measured by the consumer price index (CPI), declined to 6.1 percent in May from 6.2 percent in April, according to data released by Statistics South Africa on Wednesday.

Many economists had expected the consumer price index to edge up to about 6.3 percent.

Although the inflation has eased, it is still above the SA Reserve Bank's target of three percent to six percent.

The decline inflation has led the SA Reserve Bank (SARB) to hold the repurchase rate at seven percent on July 21.

"We expect food prices to remain at higher levels, at least until mid-2017, assuming that there will be favorable weather conditions in the 2016/17 production year to replenish market supplies. There are indications that the current El Nino is transiting to La Nina," Wandile Sihlobo, an economist told Xinhua.

He added that agricultural commodity prices are still at higher levels on the back of tight supplies caused by the El Nino induced drought.

Moreover, this year, South Africa is a net importer of grains, therefore a weaker Rand has added inflationary pressures on soft commodity prices, which in turn is translating to higher food prices, he said.

"The petrol price was up by 12c/litre in May and 52c/litre in June, while a 17c/litre hike is building for July, following higher oil prices, which will limit the speed CPI inflation declines by this year. The hawkish SARB may be set to hike the interest rate further this year," Bishop said.

She, however, expect the inflation to fall to an average five percent in 2017.

The SARB could not hike rates because of the sluggish economic growth. Another economist support her assertion.

"The bottom line for the Reserve Bank is that CPI still remains outside the upper six percent inflation-target band," Jeffrey Schultz, an economist at BNP Paribas Securities, said.

"There seem to be some breathing space for now, but I think the scope for upside CPI surprises in the second half of the year is still very much there," he added.

Core inflation, which excludes food, non-alcoholic beverages, gasoline and electricity costs, was 5.5% in May, the same as the previous month. Endit