Inflation surprises on downside despite April VAT hike

Inflation eased to 4.4% for May compared to 4.5% in April, despite the implementation of a VAT hike implemented in April.

This is according to Statistics South Africa (StatsSA), which on Wednesday released the consumer price index figures for May. The index increased 0.2% month-on-month.

The market consensus was for CPI to accelerate to 4.6%, and in a market update on Wednesday RMB economist Isaah Mhlanga had projected an increase to 4.8% having considered the VAT pass-through.

Mhlanga also expected the fuel price and weak rand to impact inflation. “The oil price and a weak rand have had a huge impact (on inflation), but the second-round effects will only be visible in the months to come and they are difficult to quantify and separate from the first-round effects,” said Mhlanga.

He expects the current account deficit data due on Thursday to be a “shock to the currency”, RMB projects it to be 5% of GDP.

By 10:23 the rand was trading 0.44% firmer from the previous close at R13.68/$. 

Contributors to May's inflation include food and non-alcoholic beverages which increased 3.4% year-on-year. Inflation for restaurants and hotels increased by 5% year-on-year.

Transport contributed to the month-on-month inflation, the index increased 1.2%.

In May the CPI for goods increased by 3.5% year-on-year, unchanged from April. The CPI for services increased by 5.3% year-on-year, also unchanged from April.

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