Sharp fall in South Africa's headline inflation

Headline inflation has dropped significantly in South African in recent months. Unlike Turkey, lower oil prices do seem to have a meaningful impact on headline inflation in SA. 

SARB's main headache in coming months will likely be to assess whether or not core inflation will remain this high. While headline inflation is significantly below SARB's reference rate, core inflation has been extremely steady, right in line with the repo rate at 5.75%. 

"We believe this combination of stubborn high core and low headline inflation may prevent SARB from changing policies anytime soon, states RBC Capital Markets.

"Our central scenario for the remainder of the year is that headline inflation does gradually increase, but by less than what the market expects. This is because oil prices remain low and year-on-year energy price change should still be negative. Moreover, recent alarming unemployment data should raise concerns that the output gap is indeed larger than believed earlier. We forecast the rand to remain weak, but we remain overall more bullish on the rand than most other EM currencies", according to RBC Capital Markets.