5 consequences of slower inflation (e.g. removal of zero-VAT rating on fuel)

South Africa's inflation rate slowed to 5.3% year-on-year in April from 6.1% in March.

The Money Show’s Bruce Whitfield interviewed Investment Solutions Chief Economist Lesiba Mothata.

Mothata discussed the following consequences of the slowing inflation rate:

  • There is relief for consumers in the short-term, but the medium to longer term inflation outlook remains muddy with great uncertainties induced by the effects of junk ratings.

  • Rand strength is positively impacting the oil import bill, resulting in lower petrol prices. This has offset the negative effects of higher taxes (fuel levy) for consumers. National Treasury has said in the February Budget that it plans to remove the zero-VAT rating of fuel next year.

  • The Western Cape drought situation, combined with prospects of weather patterns forming another El Nino (drought conditions) later this year, is expected to dampen the decline in food inflation in the medium term.

  • Since CPI inflation has stayed above the 6% upper inflation target range for 15 consecutive months, with August 2016 as an exception, the SARB will be reluctant to cut interest rates just yet.

  • Medical aid inflation, which was surveyed in this April number, remains well above the 6% upper inflation target range. This especially impacts on retired people.

For more detail; listen to the interview in the audio below.

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