South Africa CPI (Mar.) - Capital Economics
Africa Economics

South Africa CPI (Mar.)

Africa Data Response
Written by Virag Forizs

The larger-than-expected fall in South African inflation, to 4.1% y/y, in March will give the central bank more room for manoeuvre. Although yesterday’s announcement of a fiscal package by the government relives pressure on the Reserve Bank to act, given the scale of economic damage, we think more easing is on the horizon.

More easing on the cards as inflation softens

  • The larger-than-expected fall in South African inflation, to 4.1% y/y, in March will give the central bank more room for manoeuvre. Although yesterday’s announcement of a fiscal package by the government relives pressure on the Reserve Bank to act, given the scale of economic damage, we think more easing is on the horizon.
  • Figures published this morning (earlier than the revised data release schedule) showed that inflation in South Africa softened from 4.6% y/y in February. This was a touch below our estimate of 4.2% y/y, and the consensus forecast of 4.3% y/y collected by Reuters.
  • The drop in the headline inflation was almost entirely due to lower energy prices. The plunge in global oil prices pushed down transport price inflation from 6.2% y/y in February to 3.4% y/y in March. Core inflation also softened a touch, while price pressures in other sectors were relatively stable. (See Table 1.)
  • We expect oil prices to remain low, depressing inflationary pressures. The headline rate will probably fall towards to lower end of the Reserve Bank’s target range of 3-6% in the coming months, providing space for monetary policymakers to lower rates further.
  • Yesterday’s announcement of a large fiscal package, worth 10% of GDP, to support the economy through the coronavirus crisis will take some of the pressure off the Reserve Bank to provide stimulus. Before the announcement, monetary authorities were doing the legwork. The SARB has cut the benchmark rate by a cumulative 200bp over the past two months (to 4.25%) in uncharacteristically aggressive action. Given the scale of economic damage, further easing is likely. We’ve pencilled in 75bp of cuts in the repo rate, which would take it to 3.50%. (See Chart 1.)

Chart 1: South Africa Consumer Prices & Policy Rate

Sources: Stats SA, SARB, Capital Economics

Table 1: South Africa Consumer Prices

Headline

Core

Food*

Housing

Transport

% y/y

% m/m

% y/y

% y/y

% y/y

% y/y

Dec.

4.0

0.3

3.8

3.9

4.6

3.3

Jan.

4.5

0.3

3.7

3.7

4.7

6.4

Feb.

4.6

1.0

3.8

4.2

4.7

6.2

Mar.

4.1

0.3

3.7

4.2

4.8

3.4

Source: Stats SA (*) Includes non-alcoholic beverages


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com