The figure is precisely in line with the forecast made earlier this week by The Common Sense’s in-house economist, Bheki Mahlobo, who expected headline consumer price inflation to rise to near 4.0% year-on-year for April.

The increase places inflation at the top end of the preferred 3.0% target of the South African Reserve Bank (SARB), once the bank’s one percentage point tolerance band above that target is taken into account.

The inflation print comes just over a week before the SARB’s Monetary Policy Committee (MPC) is due to announce its next interest rate decision next week Thursday.

On Monday, Mahlobo advised that the MPC may hold the repo rate steady at 6.75%, rather than hike rates. That put him out on a limb compared to the consensus position of most economists and banks, who have pencilled in a 25-basis point rise.

Mahlobo says that two local markets were signalling a hike.

“The first is that the balance of economists appears to be pencilling in a hike. The second is that the forward rate agreement (FRA) market is now signalling roughly one 25 basis point increase over the next month,” said Mahlobo.

“FRAs are financial contracts used by banks, pension funds, insurers, asset managers, and large companies to hedge against future interest-rate movements. They allow institutions to effectively lock in an interest rate today for borrowing or lending that will take place at a future date. […] Because real money is placed behind these contracts, FRA markets are closely watched by economists and central banks as a live measure of what professional investors believe interest rates are likely to do in coming months.”

Mahlobo explained that while current FRA pricing suggests that professional investors are increasingly positioning for a 25 basis point increase in South African rates, “the SARB may instead hold on rates at the end of May and remain guided primarily by the official domestic inflation number and the fact that the currency has strengthened by just under 10% over the past year on the back of a weaker United States dollar, thereby moderating imported goods prices”.

The rise in inflation matters for households because it means the overall cost of living is increasing faster than it was a month earlier. For consumers already under pressure from high debt costs, weak wage growth, and rising administered prices, the April figure will add to pressure on household budgets.

Mahlobo has stressed that inflation and higher prices should not be treated as identical.

He argues that inflation, properly understood, is caused when central banks increase the money supply faster than the economy grows, reducing the value of money over time. Central banks respond to this by raising interest rates in the hope of cooling borrowing and spending.

By contrast, Mahlobo argues that price increases caused by external shocks, such as global oil prices, supply disruptions, or imported costs, are not always the same as monetary inflation and cannot necessarily be solved by higher interest rates.