South Africa’s inflation rate dropped sharply in October to its lowest level since the peak of the COVID pandemic, data showed on Wednesday, buttressing expectations for another interest rate cut by the central bank this week.
Statistics South Africa said falling fuel prices were the primary driver of the slowdown in annual inflation to 2.8% from 3.8% in September (ZACPIY=ECI), opens new tab, with slowing food inflation another important factor.
October’s reading is the lowest inflation has been since June 2020, when South Africans were subject to one of the harshest COVID lockdowns worldwide. Inflation has only been below 3% in a handful of months in the past two decades.
Independent economist Elize Kruger said fuel and food price developments play a greater role in October, a month when there are typically fewer changes in the prices of other items.
South Africa’s government-regulated petrol and diesel prices fell by more than one rand a litre in October.
Economists polled by Reuters had forecast inflation would slow to 3.1%, well below the 4.5% level the South African Reserve Bank aims for, but just within its 3%-6% target range.
In August South Africa’s headline inflation fell below the midpoint of the central bank’s target range of between 3% to 6% for the first time since April 2021
In August South Africa’s headline inflation fell below the midpoint of the central bank’s target range of between 3% to 6% for the first time since April 2021
South Africa’s central bank will announce its next interest rate decision on Thursday.
In a media report, all of the 22 economists surveyed predicted the bank would lower its repo rate (ZAREPO=ECI), opens new tab. Twenty of the 22 predicted a 25 basis points (bps) cut and two a 50 bps reduction.
Several economists said on Wednesday that they were still expecting a 25 bps cut, the same size of reduction as in September, when the central bank cut rates for the first time in more than four years.
Johann Els, chief economist at Old Mutual, argued Wednesday’s data showed there was now very little inflationary pressure in the South African economy and the central bank should opt for a 50 bps cut.
