Core Inflation Hits 4-Year Low, Paving Way for SARB Easing

Traders widely anticipate that the South African Reserve Bank (SARB) will continue its interest rate cuts at next week’s meeting.

This expectation stems from a recent inflation report indicating that consumer price growth has been softer than expected.

Statistics South Africa reported on Wednesday that prices in June were 3% higher than a year earlier—an increase from May’s rate of 2.8% but below the 3.1% median forecast from 12 economists surveyed by Bloomberg.

Inflation has remained near the SARB’s lower target of 3% for nine consecutive months, providing a favourable environment for looser monetary policy.

Core inflation, which excludes volatile items like food and energy, has also fallen to its lowest level in over four years.

Considering these indicators, the SARB—after reducing its key rate from 7.5% to 7.25% in May—is expected to implement another 25-basis-point cut at the upcoming Monetary Policy Committee meeting.

Elna Moolman, head of macroeconomic research for South Africa at Standard Bank Group, stated, “This data supports the case for further rate cuts at the next MPC meeting next week. While we anticipate inflation will trend upward in the coming months, we expect it to remain within a manageable range.”

Financial markets reacted positively to the inflation release on July 31.

Forward-rate agreements increased the likelihood of a rate cut, anticipating a 24-basis-point reduction compared to 22 basis points the day before.

Equities and bonds also experienced gains after the report. The FTSE/JSE Africa All Share Index rose by 0.9%, and yields on benchmark government bonds maturing in 2035 decreased by three basis points to 9.82%.

By 11 a.m. in Johannesburg, the rand held steady against the U.S. dollar, reflecting continued investor confidence.

The modest uptick in inflation was primarily driven by higher costs in housing and utilities, along with a surge in food and non-alcoholic beverage prices.

Food inflation reached a 15-month high of 5.1%, largely due to significant increases in the prices of stewing beef, mince, and steak.

Notably, the price of stewing beef soared by an unprecedented 21.2%—the largest rise on record—following an outbreak of foot-and-mouth disease.