By Koketso Mano
Headline inflation slowed to 5.3% in March, from 5.6% in February. The print was slightly below our and the consensus expectation of 5.5% and 5.4%, respectively. Monthly headline inflation was 0.8% as the pressure on core items, which contributed 0.5ppt, was exacerbated by fuel inflation which added 0.3ppt.
Core inflation eased to 4.9% y/y, from 5.0% previously, but the monthly pressure of 0.7% was driven by education, housing, as well as alcoholic beverages and tobacco inflation. Services inflation stood at 5.0%, while core goods was 4.6%.
Average fuel prices lifted by 5.3% m/m and were up by 6.2% relative to March 2023.
Food and non-alcoholic beverages (NAB) inflation continued softening to 5.1% y/y, from 6.1% previously, falling to within the inflation target band. Monthly pressure of 0.1% was driven by NAB inflation, while meat deflation continued.
Outlook
We expect headline inflation to remain flat at 5.3% in April as monthly pressure eases to 0.3%. This will be supported by slowing core monthly inflation as the weight of periodical surveys falls in April. Nevertheless, fuel inflation should continue to lift following the over 60c increase in petrol prices in that month and should also impact broader transport costs. While we foresee food inflation softening towards the middle of the year, there is a likelihood that lower yields following hostile weather conditions will revive price pressures. Furthermore, heightened tensions in the Middle East could weigh on oil supply, posing an upside risk to fuel and logistical costs. The rand is also adversely affected by hawkish monetary policy rhetoric in the US. All of this could keep inflation much stickier than anticipated.
Selected sector analysis
It would follow that nominal interest rates remain at current levels for longer. This is amplified by expectations for Fed rate cuts being pared back, with the market now only expecting two cuts before year end. Ultimately, the view that interest rates remain higher than pre-pandemic levels for the foreseeable future remain intact. The April inflation print is scheduled for release on 22 May. Major periodical surveys conducted in April include medical insurance (7.11% weight in CPI) as well as funeral expenses and insurance (2.28%).
