South Africa: Inflation drops to 4.6 percent
South Africa's inflation rate has fallen more sharply than expected, reaching a three-year low in July and approaching the central bank's target, strengthening expectations for an interest rate cut next month.
Advertisement
Data released by the statistics agency on Wednesday revealed that consumer inflation decreased to 4.6 percent year-on-year in July, down from 5.1 percent in June. This decline surpassed analysts' predictions, as a Reuters poll had forecast inflation at 4.9 percent for July.
The South African Reserve Bank (SARB) prefers to see inflation around 4.5 percent, the midpoint of its 3 to 6 percent target range. However, inflation has remained above this level since mid-2021.
Prior to the latest inflation figures, most economists surveyed by Reuters anticipated that the SARB would reduce its main interest rate by 25 basis points at its next policy announcement on September 19. The likelihood of a rate cut now appears even stronger.
"The SARB has definitely run out of excuses not to cut interest rates and might have to consider a bigger cut," said independent economist Elize Kruger.
David Omojomolo, Africa economist at Capital Economics, noted that July's data "seals the deal" for a September rate cut and suggested that inflation could fall below 4 percent by the end of the year.
At its July meeting, the central bank indicated that it expected inflation to dip below 4.5 percent over the coming quarters, driven mainly by declining food and fuel costs.
The latest data showed that inflation for food and non-alcoholic beverages fell to 4.5 percent in July from 4.6 percent in June, while fuel inflation dropped significantly to 4.5 percent from 7.6 percent in June. Core inflation, which excludes food and fuel, also eased to 4.3 percent in July, down from 4.5 percent in the previous month, according to Statistics South Africa.
