Inflation cools to two-month low in March

South Africa’s inflation rate dipped to a two-month low last month, but that is unlikely to persuade policymakers to cut borrowing costs as the drop is expected to be short-lived because of rising oil prices and renewed rand weakness.

Consumer prices rose 5.3% from a year earlier compared with 5.6% in February, Statistics SA said yesterday. The median of 18 economist estimates in a Bloomberg survey was 5.4%.

The rand, which has declined 3.2% against the dollar this year, fluctuated between gains and losses before and after the release of the data.

Its slump – along with drought conditions that are forcing up the price of maize, and a rise in oil prices triggered by geopolitical tensions in the Middle East – is likely to keep inflation sticky, making policymakers reluctant to lower credit costs.

South African Reserve Bank governor Lesetja Kganyago reiterated on Tuesday that he remains wary of inflation pressures and is ready to maintain tight monetary policy to ensure they are contained.

The inflation rate has been above the 4.5% midpoint of the central bank’s target range, where it prefers to peg expectations, since May 2021.

The monetary policy committee (MPC) has left the benchmark interest rate at 8.25% since May, after 10 successive hikes, in a bid to return it to that level.

Forward-rate agreements, used to speculate on borrowing costs, show traders pricing in a less-than-10% chance of an interest rate hike at the MPC’s 2830 May meeting.

The yield on 10-year notes fell six basis points from Tuesday’s close to 12.48% after the data was released.

March’s inflation was largely driven by higher miscellaneous goods and services, education, health and housing and utilities costs. Core inflation, which excludes food and energy costs, was 4.9%, from 5% in February.