Statistics South Africa (StatsSA) reported on 23 May that consumer price inflation increased from 3,8% year-on-year (y-o-y) in March to 4,5% y-o-y in April.

The latest reading ended a 12-month decline in headline inflation, following the introduction of a 1 percentage point increase in value-added tax (VAT) during April.

The South African Reserve Bank (SARB) said in March it expected the VAT increase to add 0.6 percentage points to headline inflation in the coming year. Nonetheless, inflation remains comfortably within the central bank’s target range of 3%-6%.

The rise in y-o-y inflation in April was associated with a faster y-o-y rise in the cost of many sub-categories, but also in particular due to a notable rise in transport costs, according to Christie Viljoen, Economist at PwC.

Private transport operation cost 7,8% y-o-y more due to a 9.0% y-o-y rise in fuel prices. The pump price of petrol and wholesale price of diesel increased on 4 April largely as a result of the annual increases in the general fuel levy (22c/litre) and Road Accident Fund levy (30c/litre).

On a positive note, states Viljoen, the average cost of ‘bread and cereals’ was 3,7% y-o-y lower in April. Bread prices are benefitting from a more competitive market environment as well as a surplus of bread-making capacity, amongst other factors.

Bread is South Africa’s second most important staple food after maize meal, and the easing in bread prices is good news especially for poorer households.

Elsewhere, fruit cost on average 2,9% m-o-m and 8,2% y-o-y less last month. Bananas and oranges, for example, are now more than 10% cheaper compared to a year ago.

The SARB Monetary Policy Committee (MPC) met on 26 – 28 March to consider interest rates, and policymakers decided with a 4:3 vote to reduce the prime lending rate by 25 basis points to 10% – the second rate cut in eight months.

Policymakers are currently in their bi-monthly meeting and will report on their deliberation this afternoon (24 May).

Viljoen believes a turning point in inflation and depreciation in the rand since the last MPC meeting will likely result in interest rates being kept on hold this week. The rand traded at R12.60/$ this morning compared to just below R12/$ some two months ago.