SA's CPI slows to 4.9% year/year in August

Economists had expected CPI to rise to 5.2% year-on-year, according to a Reuters poll.

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JOHANNESBURG - South Africa’s headline consumer inflation slowed unexpectedly in August, data showed on Wednesday, with analysts saying the print could make the central bank take a less hawkish tone when it delivers its interest rates decision on Thursday.

Headline consumer inflation slowed to 4.9% year-on-year in August from 5.1% in July, and contracted 0.1% after rising 0.8% on a monthly basis, Statistics South Africa said.

Economists had expected CPI to rise to 5.2% year-on-year, according to a Reuters poll.

The data offered some respite after Africa’s most industrialised economy slipped into recession in the second quarter for the first time since 2009, a stinging blow to President Cyril Ramaphosa’s pledge to revive the economy.

The Reserve Bank held its benchmark rate for the fifth meeting in a row in July but warned it was ready to tighten policy despite the weak economy in response to rising rand-driven inflationary pressures and offshore volatility.

The bank will announce its latest interest rates decision on Thursday, and all but one of the economists polled by Reuters predicted that the central bank would maintain its main lending rate at 6.5% as it weighs economic weakness against a pickup in inflation.

“These (inflation) numbers will provide some short-term breathing space for the bank tomorrow,” BNP Paribas South Africa senior economist Jeff Schultz said.

Schultz, however, said the pressure was building for the central bank to start sounding more hawkish due to a weaker rand.

Chief economist at Econometrix Azar Jammine says this may be good news for interest rates.

“What we see today is evidence of the fact that the pass-through effects are very small and, as a result, the impact on tomorrow’s decision is likely to enhance the likelihood that there will be no increase in the interest rates.”

Jammine says Thursday’s announcement by the Reserve Bank should indicate inflationary pressures are not completely out of the picture.

“I think we will be hearing the fact that we are not entirely out of the woods yet and that interest rates could rise in the future. And on the possibility, that there could be further turmoil on global financial markets.”

The rand has weakened 17% against the dollar so far this year, hurt by the subdued appetite for riskier assets globally and concerns over the domestic economy.

The rand extended its gains on the day to 1% in response to the inflation data.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol, and energy, fell to 4.2% year-on-year in August from 4.3% in July, while on a month-on-month basis was flat at 0.0% from 0.6%.

Additional reporting by Katleho Sekgotho.