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Inflation falls to lowest level in nearly 16 years

15th July 2020

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Annual consumer inflation for May eased to 2.1%, the lowest reading recorded since September 2004.

By comparison, inflation in April registered at 3% according to Stats SA.

"If we are correct, this print will register as the lowest year-on-year change since September 2004," FNB economists said in their weekly economic outlook ahead of the announcement, with a fall in petrol prices helping to push down May's print.

Transport prices decreased 8.4% in May, while food and non-alcoholic beverages prices increased by 4.4%. Housing and utilities prices increased by 4.5%.

With inflation contained, the Reserve Bank may consider again cutting interest rates at its meeting next week in an effort to stimulate consumption.

The Reserve Bank has already cut interest rates by 275 basis points this year, in response to the impact of Covid-19 on the SA economy.

Investec chief economist Annabel Bishop, however, expects the Reserve Bank to keep interest rates unchanged at the MPC meeting.

Bishop pointed out that interest rates are already at historic lows. The Reserve Bank would not cut rates again unless there is a "strong reason". "The current low interest levels are showing some, if nascent, signs of stimulating borrowings among corporates, and as such the moderation in debt servicing costs is enticing some activity," said Bishop.

The SARB expects consumer inflation to average 3.4% this year, and 4.4% next year. Investec expects the bank to lower its inflation forecasts, along with growth projections at its next meeting.

Edited by News24Wire

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