Fuel has pushed inflation to a 21-month high.
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South Africa’s annual inflation rate accelerated to 4.5% in May from 4% in April, pushing consumer price growth close to its highest level in almost 22 months as fuel and transport costs continued to ripple through the economy.
Statistics South Africa said consumer prices increased by 0.7% month-on-month in May, with transport and housing and utilities emerging as the biggest contributors to headline inflation.
The latest reading is creeping towards the 4.6% recorded in July 2024, which remains the highest annual inflation rate over the past 22 months.
Despite fuel remaining the biggest pressure point, Standard Bank doesn’t anticipate another rate hike as other pressure points such as food have come down.
Fuel inflation surged 28.7% year-on-year in May and was 14.3% higher than in April. The operation of personal transport equipment, which includes fuel-related costs, recorded annual inflation of 21.8%.
Electricity, gas and other fuels recorded annual inflation of 9.4%, adding further pressure to household budgets. Transport inflation reached 9.4% year-on-year, while housing and utilities increased at a pace of 5.3% year-on-year.
Investec chief economist Annabel Bishop said “there were no other significant price increases coming through on the month,” apart from smaller items that do not have their own category.
Standard Bank Group head of South Africa Macroeconomic Research Dr Elna Moolman said inflation came in marginally lower than expected.
“The downside surprise largely emanated from food prices, which stayed flat during May. Food inflation was only 1.6% on a year-on-year basis, which provides some relief to consumers amid the steep increase in fuel prices in recent months,” she said.
Historical inflation figures.
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Food inflation remained relatively subdued at 1.9% year-on-year. Within the food basket, meat prices rose 7.3% compared with a year earlier, while fruit prices were 8.5% lower and vegetables 6.0% lower.
Moolman said weak food inflation largely reflected declines in meat and fruit prices during May.
“This data, alongside the decline in oil prices in response to the imminent signing of an interim peace deal between the US and Iran, means that the upside risks to the inflation trajectory have subsided,” Moolman said.
Moolman added that the lower inflation risks increased the likelihood that the South African Reserve Bank would not need to raise interest rates further.
Ahead of the release of the inflation data, independent economist Dr Roelof Botha said the economy remained resilient despite the recent oil-price shock.
“Fortunately, the South African economy is in fairly good shape and is poised for higher growth when the war in the Middle East is over, as this event will trigger a sharp drop in fuel prices,” he said.
Botha noted that although Brent crude oil prices had fallen sharply from recent highs, the impact of earlier increases continued to feed through into inflation.
“Although the price of Brent crude oil was 26% lower at the end of May than a month earlier, the impact of higher fuel prices continues to drive inflation rates higher all over the world.”
Brent crude was trading at about $77.28 a barrel on Wednesday morning, close to its lowest level since the start of March and well below the levels reached after tensions in the Middle East escalated.
The rand has also benefited from improving investor sentiment linked to peace talks between the US and Iran. The local currency traded at around R16.19 on Wednesday morning after weakening to about R16.60 late last week.
Bishop said petrol price cuts are now indicated for July, and a R2.65/litre cut for July is building. However, this will be reduced by the fact that the remaining R1.50 benefit of the fuel levy cushion will be reversed, she said.
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