The increase in South Africa’s consumer price inflation (CPI) rate in April this year is no cause for an increase in interest rates.
The CPI rate increase to 4.5% in April compared to a year ago – up from 3.8% in March – was expected, with the South African Reserve Bank (SARB) well aware that there would follow a gradual uptick over the course of the year after the repo rate was reduced by 25 basis points in March.
The increase in the CPI rate was caused by a number of factors, including the VAT rate hike from 14% to 15%, the increases in excise duties on products such as liquor and tobacco, a higher fuel levy and an end to high base effects (in March). These factors, as well as a higher oil price and weaker rand, will ensure a gradual CPI rate increase.
The impact of the higher fuel levy, increase in oil prices and a weakening rand caused fuel inflation to increase from 2.9% in March to 9.0% in April. The increase in fuel price inflation was responsible for most of the CPI increase.
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