South Africa’s inflation trajectory continues to moderate with March CPI printing at 6.1% y/y, down from 6.3% in February. The month-on-month increase was 0.6% (from 1.1% in the prior month). The biggest contributor to the headline inflation number was again food and non-alcoholic beverages (1.5ppts), although this eased from 1.7ppts in February, and was largely responsible for the slightly softer print.

The cessation of the drought, combined with a stronger currency relative to the same time last year saw food inflation drop from 10% y/y in February to 8.7% in March, with bread and cereals decelerating significantly to 8.5% from 12.8% the month before. Fruit inflation dropped to 4.6% from 11.2%, while meat inflation remained unchanged at 9.9% y/y, a number we expect to gradually rise as farmers rebuild stock.

Housing and utilities which are surveyed in March rose to 5.7% y/y from 5.6% despite rental cost growth softening to 4.8% from 5.2%. Transport costs rose 7.7% y/y (petrol was up 15% y/y but down -0.4% m/m). The additional fuel levy which comes into effect in April should see an acceleration in this number in the coming months, but there was a welcome drop in new vehicle price inflation to 5.9% y/y from 8.1%.

Overall, the inflation profile remains uncomfortably high and expectations of a faster pace of easing may have to be deferred slightly given recent rand volatility in the wake of the cabinet reshuffle and ratings downgrade. There seems little doubt now that what could have been interest rate cuts  later this year are unlikely to materialise this year, and we now expect rates to remain flat throughout our forecast horizon.