Consumer Inflation at the highest level since January 2017

May CPI came in at 6.5% YoY vs 5.9% YoY in April (Stats SA). Consumer inflation jumps to a 5-year high. This means it is at the highest level since January 2017. The May headline CPI breached the upper limit of the South African Reserve Bank’s (SARB’s) 3%-6% inflation target band. Key drivers for the inflationary overrun were food and fuel prices. 

Diesel prices have increased by more than 45% from last year.  The average price of a litre of diesel in May 2021 was R16.20. This implies that last year it would cost R729 to fill a 45-litre tank. A year later (May 2022), the average price has increased to R23.67 per litre. This means that filling the same tank is now costing R1 065. Petrol prices on the other hand are almost 27% more expensive than they were a year ago. 

The effect of the high May CPI, means that we expect the SARB to hike rates in July, followed by two more rate hikes in the September and November meetings. Expectations are that repo rate would reach 5.75% by the end of the year. SA consumers are expected to remain under increasing price pressures which is going to impact consumer spending dampening economic growth prospects further negatively.