Financially constrained consumers have their hopes raised that the South African Reserve Bank (SARB) will begin cutting interest rates after headline consumer inflation fell to its lowest in six months in June.
Data from Statistics South Africa (Stats SA) yesterday showed that the annual inflation rate eased to 5.1% in June, edging lower from 5.2% in May, mainly driven by the decline in food prices.
Though consumer prices remained above the 4.5% midpoint of the SARB’s target range of 3-6%, this was the lowest inflation reading since December last year, when it was 5.1% again.
Stats SA’s chief director of price statistics, Patrick Kelly, said inflation has remained within the 5% to 6% range for the past 10 months.
Kelly said the annual food inflation was the lowest in 45 months in June.
“After stalling at 4.7% in April and May, the annual rate for food and non-alcoholic beverages (NAB) edged lower to 4.6% in June. Food and NAB inflation has declined from its recent peak of 14.0% in March 2023.
“June’s reading is the lowest since September 2020 – 45 months ago at the peak of the Covid-19 lockdowns – when the rate was 3.8%,” Kelly said.
According to Investec economist Lara Hodes, international food prices were a key contributor to local food costs as South Africa is a price taker for most agricultural food produced through either import or export parity pricing and June saw the agricultural food commodities index decline by -5.3% month-on-month.
Meanwhile, Stats SA said housing and utilities recorded an annual inflation rate of 5.5% in June, lower than 5,8% in May.
Annual transport inflation cooled to 5.5% in June from 6.3% in May. New vehicle inflation slowed to 5.2% from a recent high of 8.4% in September last year. Fuel prices dropped by 4.6% between May and June, taking the annual rate for fuel to 7.6% from 9.3%.”
Indeed, the notable R1.24/litre petrol price cut implemented at the beginning of June had a moderating effect on headline outcome, with the transport category detracting -0.2% from the monthly inflation outcome.
The annual core inflation, which excludes food and fuel prices, also ticked down to 4.5%, the lowest reading since December last year, from 4.6% in May.
Standard Bank Group head of SA macroeconomic research Dr. Elna Moolman said the June inflation data was very encouraging insofar as it showed that headline and core inflation eased while rental inflation remained quite subdued.
“In other words, this data set confirms a lack of demand-driven inflation, which is an important consideration when the Reserve Bank decides on the interest rate path,” Moolman said.
“This data is therefore providing some support for our long-standing view that the Reserve Bank will likely start to ease monetary policy reasonably soon. This should provide relief to the economy rather than significant stimulus as we still don't expect a very deep cycle.
“We only expect one percentage point of interest rate cuts spread over four meetings; in other words, a quarter percentage point at a time.”
On a monthly basis, the consumer price inflation grew by 0.1% following a 0.2% increase in the prior period.
FNB senior economist Koketso Mano said headline inflation should continue its relative stability in July, despite monthly pressures lifting strongly on utility cost increases and intensifying food price pressures.
Nevertheless, Mano said fuel deflation, following the R1 per litre reduction in petrol prices, should once again mitigate these pressures.
“Headline inflation forecasts for 2024 and 2025 are being scaled down, as seen in the latest SARB forecast as well, reflecting slowing global inflation, stable oil prices, a less depreciated rand, and subdued domestic demand,” Mano said.
“However, upside risks are material as heightened geopolitical tensions affect logistics and the trade of goods. Furthermore, adverse weather conditions should support the premium on soft commodity prices.
“Therefore, while the IMF predicts that global inflation will slow to 4.4% in 2025, from 5.9% this year, the emphasis is that the road ahead should be bumpy.”
BUSINESS REPORT