PPS analysis: CPI for May 2020

Consumer price inflation was 2.1% year-on-year in May 2020, down from the 3.0% year-on-year the previous month.

Due to the lockdown restrictions across South Africa there was a delay in releasing the May inflation print as Statistics South Africa (Stats SA) had to find indirect ways of assessing the inflation basket. This marks the first time that year-on-year inflation breached the 3% threshold of the target band since June 2005; and is the lowest year-on-year inflation recorded since the 1.4% print in September 2004. There were no increases to the contribution to year-on-year inflation, while transport (-0.5% to -1.2%), clothing and footwear (0.1% to 0.0%) and the residual (0.1% to 0.0%) showed a decrease in the contribution to year-on-year inflation.

Month-on-month inflation decreased by 0.6% in May 2020. The change in the cost of transport resulted in the full change to the month-on-month inflation adjustment.

The lack of demand within the economy is evidenced by the inflation rate. In addition, the speed by which the inflation rate has moved from the midpoint of the target band to below the bottom of the band, notwithstanding the sizable interest cuts that the South African Reserve Bank (SARB) has implemented, highlights the lack of growth and the need for growth in South Africa. This provides more scope for additional interest rate cuts that at these inflation levels are almost inevitable.