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Inflation moderation brings hope for interest rate cuts

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By Lee-Yandra Paulsen

Annual consumer inflation continued its downward trend in April, as the consumer price index (CPI) recorded a year-on-year increase of 5.2%, down from 5.3% in March and 5.6% in February. Statistics South Africa reported that while general food inflation has slowed, the prices of vegetables, fruit, and hot beverages have remained elevated. Specifically, inflation for food and non-alcoholic beverages eased to 4.7% in April from 5.1% in March, marking the fifth consecutive month of decline.

Economist Dawie Roodt, speaking on VOC Breakfast on Thursday, expressed cautious optimism. “It is good news for us that the inflation rate is gradually drifting lower. It is slightly better than what economists expected, with inflation at 5.2% for April, down from 5.3% in March. There are reasons why inflation remains relatively high, such as food prices. However, some food prices have dropped below their levels from a year ago. Generally speaking, food prices are still at about 4.7%,” Roodt explained.

Roodt suggested that this favorable inflation data could influence the South African Reserve Bank (SARB) to consider cutting interest rates. “We have to wait until next week for the Reserve Bank to make that decision. I do not think they will start cutting interest rates yet. But certainly, inflation is moving in the right direction, and with a bit of luck, we can see inflation dipping below 5% in the next two months,” he said.

SARB Governor Lesetja Kganyago has consistently emphasized the importance of reducing inflation to around 4.5%, the mid-point of the SARB’s 3-6% target range, before considering interest rate cuts. Despite the positive trend, Roodt noted several risks, including the potential impact of the upcoming election on the exchange rate. “There are still a lot of risks out there. We’ve got an election next week, and it can potentially have a negative impact on the currency,” he said.

However, Roodt highlighted that the current expectations around the election are positive, with the Rand appreciating significantly. He also mentioned that citizens could expect a significant cut in fuel prices next month, providing further relief to consumers.

VOC News

Photo: Pixabay

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