South Africa’s inflation dropped more than forecast to a three-year low in July, nearing the level the central bank aims for and cementing analysts’ expectations for an interest rate cut next month.
Consumer inflation fell to 4.6% year on year in July from 5.1% in June (ZACPIY=ECI), opens new tab, statistics agency data showed on Wednesday, whereas analysts polled by Reuters had forecast annual inflation of 4.9% last month.
The South African Reserve Bank likes to see inflation around 4.5%, the midpoint of its 3% to 6% target range, but it has been above that level since mid-2021.
Before the latest inflation print, most economists in a Reuters poll had predicted the SARB would reduce its main interest rate (ZAREPO=ECI), opens new tab by 25 basis points at its next policy announcement on Sept. 19, and a cut now looks more likely.
“The SARB has definitely run out of excuses to not cut interest rates… and might have to consider a bigger cut,” independent economist Elize Kruger said.
July’s data “seals the deal” on a September rate cut, said David Omojomolo, Africa economist at Capital Economics, adding he thought inflation could fall below 4% by the end of the year.
The central bank had said at its July meeting that it expected inflation to dip below 4.5% over the next few quarters, mainly due to falling food and fuel costs.
July’s data showed inflation for food and non-alcoholic beverages fell to 4.5% from 4.6% in June, while fuel decreased to 4.5% from 7.6% in June.
So overnight we had comments from the ECB’s Martin Kazaks on the sidelines in Jackson Hole, suggesting the central bank would be cutting rates next month.
Core inflation, which excludes food and fuel, came in at 4.3% in July versus 4.5% in June, Statistics South Africa added.