Inflation remains contained but a rate cut is still unlikely

Consumer price inflation increased by 4.4% year-on-year at the end of April 2019, slightly lower than the 4.5% year-on-year increase in the previous month. The market expectation was that inflation would remain unchanged in April. The year-on-year decline in alcoholic beverages and tobacco; and recreation and culture were slightly offset by a year-on-year increase in transport.

Month-on-month inflation has increased steadily over the past three months, with two 0.8% increases in February and March respectively followed by a 0.6% increase in April. Transport contributed 0.4% to the month-on-month increase, with the residual adding the further 0.2%.

At a time when South Africa is experiencing a disappointing economic growth rate, a high level of unemployment and inflation that appears to be contained, consumers could feel justified in expecting a rate cut at the next Monetary Policy Committee (MPC) meeting tomorrow. Consensus is however firmly in the camp of no change to interest rates. The SA Reserve Bank Governor has consistently emphasised the goal of targeting the midpoint of the 3% to 6% range and a change in mindset around this expectation should make future MPC decisions easier to accept.