South African inflation eases on cooling fuel prices
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South African inflation experienced a slowdown due to a significant drop in fuel prices, though other categories continued to show elevated levels, creating mixed signals for the central bank.
The consumer price index (CPI) rose by 5.5% in November compared to the same month a year earlier, following a 5.9% gain in October, according to a statement from Statistics South Africa. This figure slightly exceeded the median estimate of 5.4% from 16 economists surveyed by Bloomberg. The South African Reserve Bank (SARB) targets inflation within the range of 3% to 6%.
Despite food price inflation being higher than anticipated at 9% year on year, the overall data suggests that the SARB is likely to maintain a cautious stance, keeping interest rates at elevated levels in the upcoming months. The central bank remains wary of ongoing cost pressures, and the mixed signals in the inflation data contribute to the complexity of its decision-making regarding monetary policy.
Key Takeaways
The SARB maintained its main interest rate unchanged for the third consecutive policy meeting last month, with Governor Lesetja Kganyago emphasizing the bank's view that inflation would stabilize around the mid-point of its target band by 2025. Razia Khan, Chief Economist for Africa and the Middle East at Standard Chartered Bank noted that headline inflation is expected to decrease further in December due to anticipated fuel price cuts. Khan expressed the belief that with the improving inflation outlook and considering the current temporary weakness in the rand, the SARB could be in a position to reverse some of the previous interest rate hikes. The inflation figures released on Wednesday had a minimal impact on the rand, which was trading around 0.5% weaker against the dollar on the day. The market seems to be monitoring both inflation trends and external factors, such as currency fluctuations, in assessing the future direction of South Africa's monetary policy.
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