Consumer prices in South Africa eased in March as the headline inflation rate fell to 6.1% on a year over year basis. Headline consumer prices were seen falling to a 6-month low as a result. The nation's inflation rate was registered at 6.3% in February.

Economists polled by Bloomberg were expecting to see a headline print of 6.3% instead, forecasting the same pace of increase as the month before.

South Africa Inflation Rate – March 2017 (Source: Tradingeconomics.com)

Excluding food and energy prices, the core inflation rate was registered at 4.9%, down from 5.2% that was registered in February this year. It was also lower than the median estimates of 5.3%.

The decline in consumer prices came following a better than expected rainfall which helped to ease the soaring costs of food prices that jumped on the back of a severe drought. The weaker pace of increase in the inflation rate is expected to see the central bank of South Africa respond with keeping interest rates on hold as it expects inflation to slip even further.

On a month over month basis, inflation was down 0.6% compared to 1.1% previously, official data showed.

SARB cites exchange rate as a threat to inflation

The South Africa's Reserve Bank (SARB) kept interest rates unchanged for nearly a year when it hiked interest rates by 200 basis in March last year, bringing the key lending rate to 7%. The SARB maintained the interest rates steady in a bid to bring inflation within its target band of 3% - 6%.

At its previous meeting just a week before on April 11, the central bank said that the scope for a rate cut remained low noting that the tightening measures were over.

The central bank is also seen battling the exchange rate which has come under pressure due to the political situation in the nation. The SARB said that it expected consumer prices to average at 5.9% in 2017.

The South African rand was down 12% after President Jacob Zuma sacked the popular and respected finance minister, Pravin Gordhan around late March this year.

The decision led to a credit downgrade for the nation to "junk" status as investors grew concerned about the direction of the nation's fiscal policy amid growing calls from political parties for Zuma to resign. All three ratings agencies lowered their outlook for the region noting that the political events have significantly weakened the standards of governance.

The South African rand was seen recouping some of the losses since the second week of April after prices started to retreat from the 3-month high at 13.9523.

Regional experts suggest that the easing of consumer prices is a step in the right direction and expect South Africa's consumer prices to continue to slide. However, central bank officials have warned that the recent plunge in the rand’s exchange rate could post some upside pressure on consumer prices.

Inflation had seen a rapid increase largely with a spike in food prices. It is estimated that in 2016, food prices which make up nearly a fifth of the basket of goods measured jumped 12% on the back of a worse than expected drought that the nation has seen in a decade.

At the most recent release, food prices gained 8.7%, which was the slowest pace of increase since February last year.

Looking ahead, the monthly producer prices index will be coming into focus this week. South Africa's PPI fell to the lowest level in 14-months in February, rising at a pace of just 5.6% on a year over year basis, extending the declines from January's 5.9% increase. It was the weakest factory gate inflation recorded since December 2015.