Photographer: Dean Hutton/Bloomberg

South Africa Core Inflation Rate Drops to Six-Year Low

Updated on
  • Headline inflation quickened to 4.7 percent in December
  • Central bank left benchmark rate unchanged last week

South Africa’s central bank may return to the interest rate-cutting cycle it started last year as core inflation slowed to the lowest in six years and headline price growth stayed close to the mid-point of the target range in December.

The inflation rate rose to 4.7 percent from 4.6 percent the previous month, the Pretoria-based Statistics South Africa said on its website Wednesday. That’s in line with the median of 20 economists’ estimates compiled by Bloomberg. Prices rose 0.5 percent in the month.

Core inflation, which excludes the prices of food, non-alcoholic beverages, energy and gasoline, slowed to 4.2 percent, from 4.4 percent. That’s the lowest rate since December 2011.

Price growth has been inside the 3 percent to 6 percent target band for nine months and the Reserve Bank projects it will stay in the range until at least the end of next year. The rand -- among the world’s most-volatile currencies and a key risk to prices -- has strengthened since the ruling party elected Deputy President Cyril Ramaphosa as its new leader in December, spurring hope that policy uncertainty and political turbulence will dissipate.

The Reserve Bank kept its benchmark lending rate unchanged at 6.75 percent for a third straight meeting last week, citing risks of a credit-rating downgrade muddying the outlook for the rand and inflation. The bank cut the rate for the first time in five years in July to support an economy that entered its second recession in almost a decade in the first quarter of 2017 and has struggled to mount a strong recovery.

S&P Global Ratings and Fitch Ratings Ltd. reduced the country’s debt to junk in 2017 after the removal of Pravin Gordhan as finance minister increased political and policy uncertainty. Moody’s Investors Services put the nation on review for a downgrade in November and a reduction of local-currency bonds by the company, which may take place in March, could trigger an exclusion of the country’s rand debt from Citigroup Inc.’s World Government Bond Index.

Finance Minister Malusi Gigaba will announce the budget on Feb. 21.

“I won’t say that today’s numbers would change the bank’s stance,” said Gina Schoeman, an economist at Citigroup Global Markets. “The more powerful determinant of the bank’s stance at the next meeting in March will be how the market reacted to the budget and what Moody’s decision is.”

— With assistance by Simbarashe Gumbo

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