Cape Town - Economists have said that the cooling down of inflation for a second consecutive month in May to 6.3% from 6.8% in April is good news for now.
However, they say it is still too early to say things are definitely looking up for the economy.
Statistics South Africa (Stats SA) said that May’s reading was the lowest since April 2022, when the rate was 5.9%. In February and March, the CPI slightly surpassed the 7% range.
The main contributors were food and non-alcoholic beverages, which increased by 11.8% year-on-year and contributed 2.1 percentage points, as well as housing and utilities, transport and miscellaneous goods and services.
CPUT applied economics head Maarten van Doesburgh said: “There's absolutely no doubt that any reduction in CPI is good news, but we’ve got to look at this very cautiously.”
Van Doesburgh said: “We're seeing inflation mainly because of costs. Costs are being driven by a weak rand, they are being driven by load shedding and most importantly the price of fuel.
“Almost all our fuel is imported, so when there’s a weak rand, and there’s an increase in the price of fuel, we see significant inflation increase, and that’s where our inflation is coming from.”
He said while the trend was going in the right direction, the most important thing to consider was what was going to happen to the rand. He said if there was another weakening of the rand, inflation would increase.
“Personally, I think that the rand isn’t going to strengthen significantly enough to start reducing inflation. So I think we got to be cautious and see what the rand does over the next short while.
“As for load shedding, we are seeing some improvement there as well. If we could see more improvement in load shedding, then certainly in the next quarter we could hope for a future decline, but it’s too early to say.
“As a predictive economist I’m always very hesitant to predict because our rand is so volatile.”
Absa economist Sello Sekele said the uncertainty regarding the exchange rate volatility and the hard-to-quantify effects of the costs that businesses are incurring to mitigate the effects of ongoing load shedding.
Anchor Capital Investment analyst Casey Delport said: “Persistently high levels of load shedding have added significant costs across the agriculture and food value chain.”
Delport said the rand had recovered more than R1.50 against the dollar “in a colossal monthly move – even by the rand’s standards.
“While it is difficult to foresee any further strengthening from current levels, any further appreciation would naturally significantly impact the inflation outlook for the better.”
FNB senior economist Koketso Mano said that while global inflation had broadly softened from recent highs, there were worrying signs of reflation in emerging markets.
Mano said the rand had recovered from its most recent lift above R19 to the dollar, but the precarious nature of geopolitical and foreign policy issues involving SA should keep the risk of sustained or further weakness elevated.
Trade union UASA spokesperson Abigail Moyo said when it came to the pricing of basic services, food and bare necessities, the government, businesses and industry partners should keep in mind the economic hardship many workers experience.
“UASA encourages its members and other workers to consider saving a percentage of their income now that the interest rate favours their pockets.”
mwangi.githahu@inl.co.za