South African July Inflation Rate Falls to Lowest This Year

  • Central bank forecasts 0% economic growth for this year
  • Core inflation quickened to 5.7% in July from 5.6% in June

South African inflation slowed in July the lowest rate this year, strengthening the case for the Reserve Bank to end its interest-rate increase cycle.

The inflation rate fell to 6 percent from a 6.3 percent a month earlier, Pretoria-based Statistics South Africa said on its website on Wednesday. The median of 24 economist estimates compiled by Bloomberg was for 6.1 percent. Prices rose 0.8 percent in the month.

While inflation expectations, as measured by the five-year breakeven rate, surged to an almost five-week high on Wednesday as the rand weakened after news website Daily Maverick reported Finance Minister Pravin Gordhan may be arrested, the rate is still below where it was at the start of 2016, leaving room for the Reserve Bank to support an economy that it projects won’t expand this year. The Monetary Policy Committee has raised its benchmark repurchase rate by 125 basis points to 7 percent since July last year in a bid to steer price growth back into its 3 percent to 6 percent target band.

“An improved inflation profile and a stable rand exchange rate would strengthen the argument for no further interest-rate hikes in this tightening cycle,” Kamilla Kaplan, an economist at Investec Ltd. in Johannesburg, said in an e-mailed note to clients before release of the data. This is particularly “as economic growth prospects remain poor and downside risks persist.”

The MPC, which left borrowing costs unchanged at its past two meetings, forecasts inflation will peak at 7.1 percent in the last quarter of the year.

Core inflation, which excludes food, non-alcoholic beverages, gasoline and electricity costs, quickened to 5.7 percent in July, in line with the median of 13 economist estimates, from 5.6 percent the month before.

The rand was 1 percent weaker at 14.1386 per dollar as 10:08 a.m. in Johannesburg on Wednesday, paring its gains since the start of the year to 9.5 percent. Yields on rand-denominated government bonds due December 2026 rose 44 basis points to 8.96 percent.

— With assistance by Simbarashe Gumbo

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