South Africa inflation at lowest since June 2005

Consumer price inflation slowed to its lowest level in almost 15 years in April, as South Africa went into its most severe period of lockdown restrictions when only essential goods and services were available.

Consumer inflation, which slowed to 3% in April, is now at the bottom of the SA Reserve Banks target range of between 3% and 6%.

According to Stats SA, which released its consumer price index (CPI) on Wednesday, this is the lowest inflation has been since June 2005, when it sat at 2.8%.

The outcome could add to calls for the Reserve Bank to cut interest rates further to help support the economy during the worst of the Covid-19 crisis.

The Bank has already slashed the repo rate to record lows of 3.75% in 2020 to bring relief to households and businesses.

Alongside this it has taken several steps to ease liquidity pressure in local markets including buying government bonds in the secondary market, upping its holdings by R22.7bn as at the end of May.

Due to the lockdown measures Stats SA had to make significant adjustments to its CPI collection methods, as the restrictions prevented the sale of a number of items ranging from clothing to alcohol.

As a result, the April CPI was based on a “significantly limited sample”, the agency said. Prices for a total of 171 products, equivalent to 20% of the weight of the CPI basket, were collected online.

Indices where products were not available for sale have been imputed, or estimated, using the headline inflation rate, the agency said. These indices represent about 26.5% of the weight of the CPI basket.

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