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Investing.com -- South Africa’s headline inflation remained unchanged at 2.8% year-on-year in May, marking the third consecutive month inflation has stayed at or below the lower bound of the central bank’s 3-6% target range.
The inflation figure matched the LSEG consensus forecast and came in slightly above some analyst expectations. This steady inflation rate provides further evidence that the South African Reserve Bank (SARB) faces limited pressure from rising prices amid a struggling economy.
A breakdown of the May data showed food inflation increased from 4.0% year-on-year in March to 4.4%. This rise was balanced by decreases in other categories, including lower petrol prices resulting from reduced global oil prices.
Core inflation, which excludes volatile items like food and energy, held steady at 3.0% year-on-year in May, a figure likely to reassure policymakers.
Capital Economics noted in their analysis: "We think this muted reading alongside evidence from recent activity indicators that the economy is struggling to eke out growth suggests the SARB’s easing cycle has more room to run. And even if Governor Kganyago does win his long-running campaign to lower the inflation target to 3% soon, the SARB in its research and comments have signalled that it would make the case for looser monetary policy stronger rather than weaker given the current economic backdrop."
The firm projects the repo rate will decrease by another 50 basis points by the end of the year to 6.75%, with additional cuts expected in the future.
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