South Africa inflation slows to 6.1%

Headline consumer inflation in South Africa, the continent’s most advanced economy, slowed to 6.1 percent year-on-year in May from 6.2 percent in April, according to data from Statistics South Africa.

The unexpected drop in inflation rate will give the Reserve Bank room to retain interest rates, a move that would support the South African economy which is at risk of falling into recession.

The central bank forecasts growth at 0.6 percent this year, inhibiting its scope to raise interests to tame rising inflation due to a weaker rand and rising food prices. The South African Reserve Bank had gradually raised interest rates by a cumulative 200 basis points since July 2014, in a bid to balance the need to fight price pressures with that of protecting the economy.

The central bank, which expects inflation to return to its target band in the third quarter of next year.

Economists polled by Reuters and Bloomberg expected CPI to quicken to 6.4 percent year-on-year in May. However, this did not happen. Month-on-month inflation also dropped to 0.2 percent compared with 0.8 percent in the previous month.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, was unchanged at 5.5 percent year-on-year in May.