By Koketso Mano
Headline inflation was 2.8% y/y in April, up from 2.7% in March. The print was slightly above our and the consensus expectation of 2.7% and 2.6%, respectively. Monthly pressure was 0.3%, led by contributions from food and non-alcoholic beverages (NAB) inflation.
Core inflation was 0.1% m/m, and 3.0% y/y - flat from the March print. Monthly pressure was driven by communications as well as alcoholic beverages and tobacco. Services inflation recorded 0.2% m/m, and 3.8% y/y. Core goods inflation was -0.1% m/m and 1.4% y/y.
Average fuel prices declined by 3.2% m/m and 13.4% y/y.
Food and non-alcoholic beverages (NAB) inflation was 4.0% y/y, up from 2.7% previously, with monthly inflation of 1.3%. Monthly pressure was primarily from meat and vegetable price increases.
Outlook
With an update of today's data, we see headline inflation remaining stable in May at below 3% y/y and with marginal monthly inflation. Some monthly pressure on food inflation would continue to be mitigated by fuel price declines. This is while core inflation remains benign.
We still foresee muted inflation over the next few months. Despite a rising trend into 2H25, inflation should remain below the target midpoint - supported by soft oil prices, a recovery in the rand's value, and weak economic activity. Headline inflation should average around 3.5% this year, down from 4.4% last year.
The removal of the marginal impact that a VAT increase would have had on inflation should further assist with containing inflation expectations and supporting household spending growth. That said, growth forecasts have been downgraded from nearly 2% at the start of this year to closer to 1% currently, weighing on employment prospects. This weak economic environment will weigh on pricing power and sustain space for easier monetary policy. However, a turbulent global environment and risk aversion, especially with local fiscal slippage, will likely keep the South African Reserve Bank cautious. We predict that interest rates will remain unchanged at the May meeting, but apart from a wait-and-see approach that caters for global uncertainties, there is ample space for the committee to continue cutting interest rates.
The May inflation print is scheduled for release on 18 June. No major periodical surveys are conducted in May.
