South African inflation steady as CB pushes for lower target

South Africa's inflation rate was steady in May, staying below the central bank’s 3 per cent to 6 per cent target range as it pushes for the target to be lowered.

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Headline consumer inflation stood at 2.8 per cent year-on-year last month, unchanged from April and in line with the median forecast of economists polled by Reuters.

The South African Reserve Bank (SARB), which has cut interest rates at four of its last five policy meetings, stressed its preference for a lower target at its last meeting.

The finance minister would need to sign off on changing the inflation target, but discussions are at an advanced stage, Governor Lesetja Kganyago said last month.

Inflation has been below the midpoint of the target range - the current level the SARB aims for - since August 2024, and the bank believes lowering the target would make the economy more competitive.

“From the SARB's perspective this will be the ideal time to proceed with the lower inflation target, using current well-behaved inflation to anchor future expectations,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.

Danny Greeff, co-head of Africa at ETM Analytics, said a lower target “could foster structurally lower inflation and interest rates over time, benefiting both the demand and supply sides of the economy”.

Annual core inflation, which strips out volatile items like food and energy, came in at 3.0 per cent in May, the same as the previous month and below analysts’ expectations.