In the just concluded week, freshly released inflation report for South Africa showed inflation rate moderated to 4.00% year-on-year in July 2019 (from 4.50% in June 2019), trending towards the lower band of the Reserve Bank’s target range of 3% to 6%.
Key Insights:
- Inflation has remained at or below the 4.5% midpoint of the central bank’s target band every month since December, the longest such streak in more than eight years.
- The Monetary Policy Committee revised its inflation forecast for the year to 4.4% from 4.5% at its July meeting. The panel cut the benchmark interest rate by 25 basis points to 6.5%.
- A volatile exchange rate and a potential return to economic growth in the second quarter may limit the scope for further easing in 2019.
- With consumer spending under pressure, the prices of clothing and footwear and household appliances rose less than 2% from a year before, adding to the lower inflation rate.
The southward movement in the annual inflation rate was driven by the decreases in both food and core inflation rates which eased to 3.4% and 4.2% from 3.7% and 4.3% in June respectively.
Specifically, annual inflation for transport softened to 3.0% in July from 5.5% in June, as fuel cost declined by -0.5%, given the lower price of crude oil at the international market.
South African’s Reserve Bank in its July 2019 meeting cut its benchmark repo rate by 0.25% to 6.5%, in order to stimulate growth – GDP growth rate quarter on quarter contracted by 3.2% in Q1 2019.