The increase in South Africa's consumer price index, which is used by the South African Reserve Bank (SARB) for its inflation target, was up 8.0 percent year-on-year in May from 8.4 percent y/y in April, Statistics South Africa (Stats SA) said on Wednesday.

CPI was up 0.4 percent month-on-month after increasing 0.5 percent in April.

Consumer inflation was expected to have receded to a 7.9 percent increase, according to a survey of leading economists by I-Net Bridge. Forecasts ranged from 7.6 percent to 8.0 percent. CPI was at 9.9 percent a year ago.

Economists react to the CPI data:

Mike Schussler, Economists.co.za:

"Proves again that inflation is nowhere near where SARB would like to see it. By now we should have been under six percent, but we are unlikely to see it near that level for the next year or so.

"Inflation is certainly not in a good place. It is unlikely that we will get good inflation outcomes for the next few months. This is not good news for bonds or for rates going forward."

Fanie Joubert, Efficient Group:

"It's as we expected, it is slightly higher than the market consensus, but only marginally.

"It confirms that the general deceleration trend of inflation is still intact, but the level of inflation is still a concern to consumers."

Carmen Altenkirch, Nedbank:

"It's slightly higher than we expected, but on a positive note, inflation is now back to where to it was in January 2008.

"The monthly increase can probably be attributed to high food prices and services inflation."

Danelee van Wyk, Standard Bank:

"It's marginally higher than expected. But it looks like the key contributors were food and transport. Generally, this data is still showing that the inflation profile is coming down. It will definitely support the case for another interest rate cut tomorrow. We're expecting the rate to be cut by 50 basis points."

Annabel Bishop, Investec:

"CPI is marginally higher than expected. The SARB's recent warning that the aggressiveness of recent interest rate cuts will now cease, leads us to believe the June MPC meeting will see only a 50bp cut. We still expect a 50bp cut in August, and as the release of the Q2.09 GDP figures is likely to show the economy contracted by more than the authorities expect, we forecast a Q2.09 figure of -4.2 percent qqsaa, if not closer to -5.0 percent qqsaa.

"The marginally higher-than-expected CPI outcome came from unexplained pressure from the residual component. We continue to believe CPI inflation will fall back with target in H2.09

I-Net Bridge