South Africa’s June inflation flat, bolstering case for rate cuts

Usama Fayyaz July 24, 2019

JOHANNESBURG: South Africa’s consumer inflation was little changed in June as consumer demand remained weak, reinforcing the case for another interest-rate cut.

Headline consumer inflation was 4.5pc year-on-year in June, unchanged from May and in the middle of the central bank’s target range, Statistics South Africa reported on Wednesday. Prices inched up 0.4pc from 0.3pc on a monthly basis.

The South African Reserve Bank cut its main lending rate to 6.5pc last Thursday, as expected, but suggested future cuts were not a foregone conclusion despite calls for it to do more to support the flagging economy.

The South African economy contracted by 3.2pc in the first quarter as nation-wide power cuts by the ailing utility Eskom hit mining, manufacturing and retailers.

On Tuesday the International Monetary Fund lowered its forecast for South Africa’s 2019 economic growth to 0.7pc from April’s 1.2pc.

Weak growth and expectations the European Central Bank and the Federal Reserve will cut rates in coming weeks have prompted calls for more rate cuts by the SARB. But challenges to the central bank’s independence from the ruling African National Congress have made it cautious.

“Today’s inflation numbers don’t change much, but we believe there is scope for another cut this year. The bank left the door open last week by saying their decisions would be data-dependent,” said Elize Kruger, an economist at NKC African Economics.

At 0830 GMT after the inflation release the rand had barely budged, steady at 13.9350 per dollar.

Copyright Reuters, 2019

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