South Africa’s Inflation Rate Drops to Four-Year Low of 3.9%

South Africa’s inflation rate fell to a four-year low of 3.9 percent in February, giving the central bank room to extend the pause in its policy-tightening cycle.

Inflation slowed from 4.4 percent in January, the Pretoria-based statistics office said on its website on Wednesday. The median estimate of 25 economists surveyed by Bloomberg was 3.8 percent. Prices rose 0.6 percent in the month.

While falling oil prices last year helped to curb inflation in Africa’s second-largest economy, Brent crude rose 18 percent in February, boosting gasoline costs. A drought in some parts of the country may also add renewed pressure to food prices, the central bank said in a report on Tuesday.

“This is the trough of inflation and it will start to increase due to the rand-dollar exchange rate, rising oil prices and higher food prices,” Busisiwe Radebe, an economist at Nedbank Group Ltd. in Johannesburg, said by phone on Tuesday. “The Reserve Bank will have to balance two things, growth and inflation, and may keep rates on hold for most of this year.”

Policy makers have kept the benchmark repurchase rate unchanged since raising it to 5.75 percent in July as inflation stayed inside the bank’s 3 percent to 6 percent target range. The next rate decision will be made on March 26.

A separate report from the statistics agency on Wednesday showed retail sales growth slowed to 1.7 percent in January from 2 percent in the previous month, indicating weak consumer demand. Household spending makes up about two-thirds of expenditure in the economy.

Rand Weakens

The rand fell 0.3 percent to 12.3883 against the dollar as of 1:52 p.m. in Johannesburg, taking its decline this year to 6.6 percent. Yields on government bonds due December 2026 fell 4 basis points to 7.89 percent.

South Africa raised gasoline prices by 96 cents a liter for the first time this year on March 4. Macquarie Group Ltd. estimates that higher fuel costs and an increase in levies on gasoline and diesel in April may add as much as 1 percentage point to the inflation rate.

Excluding food and energy costs, consumer prices rose 5.8 percent in February from a year earlier.

“The South African Reserve bank may start raising rates towards the end of the year around November, depending on what happens with the rand-dollar exchange rate, the oil price and the U.S. rate-hiking cycle,” Radebe said.

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