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South Africa’s annual inflation rate eased in June, dipping below the upper limit of the South African Reserve Bank’s 3% and 6% target range — its lowest level in 20 months.
According to data released by Statistics South Africa on Wednesday, headline inflation slowed sharply to 5.4% year-on-year in June from 6.3% in May.
The easing is likely to be a factor in the central bank’s decision on interest rates when it concludes a three-day monetary policy committee (MPC) meeting on Thursday.
Food and non-alcoholic beverages inflation was at 11% year-on-year in June, down from the 11.8% recorded in May, Stats SA said.
Economists had expected inflation to ease to between 5.4% and 5.7% because of the high base established last year caused by Russia’s war against Ukraine.
“The main drivers will remain lower fuel and food inflation. In addition to base effects, fuel prices continue to benefit from lower global oil prices. The downward trend in food prices is also expected to continue, with prices in all the food components cooling off,” economists at Nedbank said in a note.
Annabel Bishop, the chief economist at Investec, had also expected the base effects from rapidly rising prices a year ago to bring the June figure back within the Reserve Bank’s target band.
Economists are divided on whether the MPC will effect another rate hike on Thursday or pause a tightening cycle dating back to November 2021.
Prior to Wednesday’s June inflation data, consensus was leaning towards a 25 basis points increase in line with expectations that the United States Federal Reserve will raise its own policy rate next week.