SA inflation drop makes September rate cut more likely

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, 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 (SARB) likes to see inflation at about 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 predicted the SARB would reduce its main interest rate by 25 basis points at its next policy announcement on September 19 and a cut now looks more likely.

“The SARB has 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 said at its July meeting 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 nonalcoholic beverages fell to 4.5% from 4.6% in June, while fuel decreased to 4.5% from 7.6% in June.

Core inflation, which excludes food and fuel, came in at 4.3% in July vs 4.5% in June, Stats SA added.

Reuters