South Africa’s consumer price index slowed faster than expected in May to 6.3% year-on-year, a 13-month low, from 6.8% in April. This may give the South African Reserve Bank the space it needs to end its tightening cycle.

At 6.3%, the May consumer price index (CPI) read was below market forecasts of 6.5% and was the lowest since April 2022 when it was 5.9%.

This means the 3% to 6% target range of the South African Reserve Bank (Sarb) is now in sight, and hopefully gives the central bank space to halt a tightening cycle that has seen 10 straight rate hikes taking the prime lending rate to a 14-year high of 11.75%.

“South African headline CPI inflation just decelerated a lot faster than anyone expected… and will see a further slowing on a more pronounced base effect (July 22 inflation at 7.8% y/y was the peak),” said Razia Khan, chief economist for Africa and Middle East at Standard Chartered Bank in London.

Significantly, food inflation braked to 12% from 14.3% in April. While still elevated, food prices seem to be finally cooling, which should bring some relief to South Africa’s cost-of-living crisis.

“After peaking at an annual rate of 37.6% in August 2022, the index for oils & fats continued to fall sharply in May, recording a ninth consecutive month of decline. Prices for oils & fats decreased by 2.2% between April and May, pulling the annual rate down to -2.4%,” Statistics South Africa said in a statement.

Meanwhile, bread and cereals inflation slowed to 18.1% in May from 20.8% in April, while meat inflation came in at 7.1% compared to 9.5% in April.

“Food price pressures are seeing some stabilisation in Q2 2023 now as expected, which is aiding CPI inflation lower, and base effects will be key in pulling cost-of-living increases (the CPI inflation rate) down to below 5% y/y by year-end for 2023,” said Annabel Bishop, chief economist at Investec.

There are several reasons to be cautiously optimistic that inflation in South Africa is finally being contained. The slowdown in May coincided with the rand hitting record lows against the dollar and the currency has since bounced back to close to 18.20/dollar. Also, the Sarb’s hawkish stance now seems to be containing price pressures.

Inflation is also slowing because demand pressures are weak in an economy that is barely growing and saddled with an unemployment rate of almost 33%.

Most of the price pressures are “cost-push” from the supply side, which includes the additional costs businesses have to fork out on alternative power sources to keep the lights on. This state of affairs is still far from ideal. DM