JOHANNESBURG, June 20 (Xinhua) -- South Africa's consumer inflation eased to 4.4 percent in May compared to 4.5 percent in April, according to data released by Statistics South Africa (StatsSA) on Wednesday.
On a month-on-month basis, inflation slowed to 0.2 percent in May from 0.8 percent in April, despite the implementation of a Value Added Tax (VAT) hike starting April.
Economists had expected inflation to rise, because of the cumulative effects of the recent increases in fuel prices as well as VAT.
Rand Merchant Bank economist, Isaah Mhlanga told Xinhua on Wednesday he had predicted an increase to 4.8 percent having considered the VAT pass-through.
He noted that the price of fuel and a weaker currency impacted heavily on inflation. However, the figure is still within the central bank target band of 3 percent -6 percent.
"The oil price and a weak rand have had a huge impact (on inflation)," he said. He predicts the current account deficit data due on Thursday will be a shock to the rand.
StatsSA indicated that contributors to May's inflation include food and non-alcoholic beverages which increased 3.4 percent year-on-year. Inflation for restaurants and hotels increased by 5 percent year-on-year.
John Ashbourne, senior emerging markets economist at Capital Economics, concurred with Mhlanga. He said: "Inflation will pick up a bit from here, mostly due to higher petrol prices. I think policy makers will leave their key rate at 6.5 percent over the remainder of this year."
In May, the CPI for goods increased by 3.5 percent year-on-year, unchanged from April. The CPI for services increased by 5.3 percent year-on-year, also unchanged from April.
The South Africa's rand rebounded on Wednesday afternoon, amid easing moderation in headline inflation. Market watchers expect the South African Reserve Bank to raise interest rates because of the stubborn inflation.
The Johannesburg Stock Exchange (JSE) recovered on Wednesday after three days of consecutive losses as the rand firmed and Asian markets edged higher.
The South Africa' rand firmed through the R13.70 level to the U.S. dollar on Wednesday, despite the euro remaining under pressure against the dollar.
Meanwhile, traders are still watching with keen interest the tit-for-tat between the United States and China amid looming trade war. U.S. President, Donald Trump threatened to impose new tarrifs on another 200 billion U.S. dollars' worth of Chinese imports.
