“It is welcome but not unexpected good news that headline inflation (CPI) for May has continued to show a declining trend.”

In commenting on the CPI, Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says that although food costs remain high, the overall downward trend in headline inflation is converging on earlier consensus expectations of South Africa getting closer to the goal of price stability in the months ahead.

He points out that core inflation remains stubborn for now, however.

“The inflation outlook must now also be seen in conjunction with the latest leading business cycle indicator of the South African Reserve Bank (SARB), which declined further in April. On an annual basis, this leading business cycle indicator fell by 9,1% year-on-year. Other recent high-frequency economic data also strongly reinforces the expectations of much weaker business conditions prevailing in the second half of 2023, with downside risks.”

Prof Parsons says forecasts for economic growth in 2023 therefore hover between only 0,1% and 0,3%. According to him, the present cross-currents in the economy suggest that the SARB should take a leaf from the US Federal Reserve’s book and consider pausing further interest rate hikes at its July meeting.

“There are time lags between monetary policy decisions and their effects on the real economy that need to be weighed. It is now necessary for the SARB to also assess what the cumulative impact of its rate hikes since November 2021 has been on the economy.”