Consumer prices in South Africa dropped to the lowest level in 2016 during the month of July, ushering in likelihood for the South Africa Reserve bank to end the long cycle of interest rate hikes this year. However, the headline inflation figure has settled near the upper end of the central bank’s target band of 3-6 percent, but the bank remained flexible in its policy stance, Governor Lesetja Kganyago said on Wednesday.
The inflation rate fell to 6 percent from a 6.3 percent a month earlier, data released by Pretoria-based Statistics South Africa showed Wednesday. The median of 24 economist estimates compiled by Bloomberg was for 6.1 percent. Prices rose 0.8 percent in the month.
Further, core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy rose slightly to 5.7 percent year-on-year in July from 5.6 percent and to 0.6 percent month-on-month from 0.4 percent.
Moreover, Kganyago said that inflation, which slowed to 6 percent year-on-year in July, would temporarily remain outside the bank’s target range and was susceptible to sustained weakening in the currency of Africa’s most industrialized country.
The Monetary Policy Committee, 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. The MPC 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 target band.
Meanwhile, inflation expectations surged to almost five-week high on Wednesday, following weakness in the domestic currency, after news reporting that Finance Minister Pravin Gordhan may be arrested. However, the rate is still below where it was at the start of 2016, leaving room for the central bank to support an economy that it projects will not expand this year.