South Africa’s inflation rate drops to lowest level in three years

AFRICAN BUSINESS AND ECONOMYAugust 21, 2024 at 10:37 AM UTC

TLDR

South Africa's consumer inflation drops to 4.6% year-on-year in July, nearing the South African Reserve Bank's target range.
Inflation hits its lowest level since July 2021, despite a slight increase on a month-on-month basis.
The South African Reserve Bank maintains its main policy rate at 8.25% for over a year amidst economic price pressures.

South Africa's headline consumer inflation dropped to 4.6% year-on-year in July, down from 5.1% in June, according to data released by the statistics agency on Wednesday.

This brings inflation to its lowest level since July 2021 and closer to the South African Reserve Bank's (SARB) target, which aims for a midpoint of 4.5% within a 3% to 6% range.

The SARB has maintained its main policy rate at 8.25% since May last year, following a series of hikes totaling 475 basis points from late 2021. On a month-on-month basis, inflation rose slightly to 0.4% in July, compared to 0.1% in June, reflecting continued economic price pressures.

Key Takeaways

The recent slowdown in inflation may prompt South African policymakers to consider lowering borrowing costs at their upcoming meeting on September 19. During its last meeting, the Monetary Policy Committee (MPC) kept the benchmark interest rate at 8.25%. Still, the decision was closely contested, with four members voting to maintain the rate and two advocating for a 25 basis-point reduction. A stronger rand, bolstered by South Africa's new business-friendly coalition government, could further reduce inflation risks and strengthen the case for easing domestic monetary policy. Additionally, the outlook for the rand may improve if the Federal Reserve in the US decides to cut interest rates, which could provide further support for a rate cut in South Africa.

South Africa

Inflation

SARB

Interest Rates

Economy

Rand