The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank (SARB) for its inflation target, was 4.6 percent year-on-year (y/y) in May from 4.8 percent y/y in April, Statistics South Africa (Stats SA) said on Wednesday.

It remains well within the target band of between 3 and 6 percent.

CPI was at 0.2 percent month-on-month (m/m) from 0.2 percent m/m in April.

CPI was expected to have decreased to 4.6 percent year-on-year (y/y) in May from 4.8 percent in April, according to a survey of leading economists by I-Net Bridge.

The CPI edged below six percent in February after it had reached higher than six percent the previous two months.

Forecasts among the eleven economists ranged from 4.4 percent to 4.9 percent.

Annual CPI in 2009 struck 7.1 percent from 11.5 percent in 2008. It was at 7.1 percent in 2007. The annual average for CPI was 4.7 percent in 2006 from 3.4 percent in 2005, compared with only 1.4 percent in 2004, which was the lowest annual average since 1958.

This is what economists had to say:

Carmen Altenkirch, Nedbank:

"Consumer inflation came in spot on market expectations, easing to its lowest level since May 2006. Downward pressure on inflation came from lower food prices as well as a further moderation in goods inflation, particularly durable and semi-durable goods. Double-digit administered price inflation remains the main driver of headline inflation.

"Although we still expect interest rates to remain on hold well into 2011, the MPC may surprise by easing further in July, given the near-term improvement in inflation and inflation expectations, particularly if growth figures start to disappoint."

Merina Willemse, Efficient Group:

"We are pleasantly surprised the numbers came in at 4.6 percent. We were a bit more pessimistic that consensus. We however expect this downward trend in CPI to be temporary. As administered prices, particularly Eskom electricity tariff prices, as well as double digit wage increases filter through, we expect inflation to climb to 5.6 percent by the end of the year.

"We also expect it to breach the high end of the target band sometime before the Reserve Bank predicts. We do not anticipate interest rates changing due to the lower inflation."

Annabel Bishop, Investec Group Economics:

"CPI inflation fell even lower in May, to 4.6 percent y/y, almost at the midpoint, compared to April's 4.8 percent y/y. Rand strength remains key in aiding the ongoing moderation in the inflation outcome, but the ongoing weakness in demand is also important, as well as the statistical base effect.

"CPI inflation is likely to fall to 4.0 percent in the third quarter as the lagged effect of last year's recession continues to impact the cost of living. Specifically, SA's labour market remains in recession, the seasonal increase in employment in Q4.09 was purely due to the festive season's usual rise in hospitality and retail staff and other temporary workers related to the period.

"As usual these positions were lost in the following quarter. Unemployment is high and rising, consumer demand remains very weak, and in turn demand for goods and services is poor, with the result that retailers cannot push prices significantly higher on an ongoing basis. Indeed the opposite is occurring; retailers are able to increase prices by less and less each month, if at all, as evidenced by the retail inflation readings (which is at a very low 2.1 percent in April, having peaked in 2008 at 12.7 percent).

"Monday's Q2.10 BER retail confidence indicator fell a massive 13 points to close to Q3.09's reading, while the PMI is falling and the retail, wholesale and vehicles sales figure, along with manufacturing would all be negative on the year if the distorting statistical base effect of last year's recession was removed. We expect another interest rate cut in the current cycle, of 50bp ? either at the July or September MPC meeting."

Nomava Zanazo, Pan-African Capital Holdings (Pty) Ltd:

"We had anticipated a 4.7 percent dip in inflation. The headline figure is likely to ease further on lower food prices in short term. The only threat though is the Eskom's tariff hike."

Danelee van Dyk, Standard Bank:

"May's CPI came in more or less at our expectations. Inflation will continue to ease and then bottom out around 4 percent in three months."