South African inflation dropped to 6.4% y/y in August, down from July’s 6.7% y/y, which was in line with the consensus expectation but slightly lower than our forecast of 6.5% y/y.
Details
Statistics South Africa published inflation numbers for August today. Inflation dropped to 6.4% y/y, in line with the consensus expectation. Despite the fact that inflation has moderated in recent months, it remains above the South African central bank’s (SARB) inflation target range of 3%-6%.
Assessment & Outlook
Inflation continues to moderate, but is likely to inch up at the end of the year for technical reasons despite the strong rand helping to push inflation down.
The impact of the inflation numbers on today’s MPC meeting will be rather limited. Inflation inching down only slowly and the expectation of upward pressure at the end of the year argue for unchanged decisions at today’s MPC meeting and stable interest rates going forward. However, we acknowledge that the continued significant strengthening of the rand since the last rate announcement could trigger another rate cut. The recent development in the rand will undoubtedly play an important role in today’s decision and despite our scenario of unchanged interest rates with the key policy rate at 7.00% after today’s meeting, there is a risk that the MPC cuts interest rates again.
