Increase in CPI rate no cause for higher interest rates

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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