South Africa\u2019s inflation rate dropped to the lowest level in three years, supporting the case for monetary policy easing this quarter.<\/p>\n\n\n\n
Consumer prices rose 4.6% in July from a year earlier, compared with 5.1% in June, Statistics South Africa said in a statement on its website on Wednesday. <\/p>\n\n\n\n
That\u2019s the lowest level since July 2021 and was below the 4.8% median of 16 economists\u2019 estimates in a Bloomberg survey.<\/p>\n\n\n\n
The South African Reserve Bank seeks to stabilize inflation and price-growth expectations at 4.5%, the midpoint of its target range.<\/p>\n\n\n\n
The slowdown may sway policymakers to lower borrowing costs on 19 September.<\/p>\n\n\n\n
The monetary policy committee held the benchmark interest rate at 8.25% at its last meeting, but the decision wasn\u2019t unanimous \u2014 four panellists voted for the unchanged stance, and two favoured a 25 basis-point reduction.<\/p>\n\n\n\n
A stronger rand, partly buoyed by South Africa\u2019s new business-friendly coalition government, is likely to reduce risks to the inflation outlook and support the case for domestic monetary policy easing. The outlook for the local currency may improve if the Federal Reserve cuts US interest rates.<\/p>\n\n\n\n
What Bloomberg Economics says:<\/p>\n\n\n\n
\n\u201cA firmer rand and fall in fuel prices are reining in South Africa\u2019s annual inflation faster than expected, bringing the first rate cut closer. We now expect annual inflation to reach the midpoint of the central bank\u2019s 3%-6% target in the third quarter of 2024 instead of the fourth quarter, which may kick off its rate-cutting cycle in September.\u201d<\/p>\n\u2014 Yvonne Mhango, Africa Economist.<\/cite><\/blockquote>\n\n\n\n
Forward rate agreements \u2013 used to speculate on borrowing costs \u2013 are pricing in about 65 basis points of interest-rate cuts by year-end.<\/p>\n\n\n\n
The biggest contributors to the inflation slowdown in July were a decline in the goods-inflation rate to 4.6% from 5.5%, Statistics South Africa said in a statement. Core inflation, which excludes food and non-alcoholic beverages, fuel and energy, rose 4.3%, compared with 4.5% in June.<\/p>\n\n\n\n
The rand traded slightly weaker after the data, easing 0.2% to 17.8569 per dollar by 10:41 a.m. in Johannesburg. The yield on rand-bonds due in 2035 fell six basis points to 10.70%.<\/p>\n\n\n\n
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