By Lee-Yandra Paulsen

Data from Statistics South Africa has revealed that the country’s headline inflation rate moderated to 5.3% in March, down from 5.6% in February. This decline comes after two consecutive months of climbing inflation. Since September 2023, inflation has remained within a range of 5% to 6%.

Among the categories with the highest annual price changes in March were miscellaneous goods and services, education, health, and housing and utilities. Experts suggest that these factors have contributed to the overall moderation in the inflation rate.

Economist Dawie Roodt expressed his optimism regarding the decline in the inflation rate. “There was a bit of a slowdown in the inflation rate, 5,3%. This is good news. It is good news for two reasons in previous months, we saw an increase in the rate of inflation. Inflation has now come down for the first time in three months. The inflation also came down at a lower expected by most economists in the country.”

Roodt noted that with favourable oil prices and stable currency exchange rates, inflation could gradually drift lower in the coming months. He also mentioned the possibility of an interest rate cut later in the year, contingent upon factors such as oil prices, currency exchange rates, and the outcome of the upcoming elections.

In explaining the dynamics of inflation, Roodt emphasized that several variables play a role, not just the inflation rate itself. “It is not only inflation itself that is the reason the South African Reserve Bank may decide on whether to increase or reduce interest rates it is also inflation expectations. Because inflation expectations gradually filter through to actual inflation.”
He said while inflation expectations have somewhat diminished, they remain relatively high, causing concern for the Reserve Bank.

Roodt also discussed the current state of assets in South Africa, highlighting their discounted prices. He pointed to the undervalued Johannesburg Stock Exchange (JSE) and the weak Rand, both of which indicate a lack of confidence in the country.

However, he suggested that if a government candidate deemed favourable by financial markets were elected, it could lead to a sharp appreciation in assets. In such a scenario, Roodt argued that the Reserve Bank would have an opportunity to reduce interest rates.

VOC News

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