South Africa's Inflation Decline Spurs Interest Rate Cut Speculation

South Africa's inflation dropped significantly in July, nearing the central bank's target range. The headline consumer inflation rate fell to 4.6%, a notable decrease from 5.1% in June. This decline strengthens expectations that the South African Reserve Bank will cut interest rates next month.

South Africa's inflation dropped more than anticipated in July, closing in on the central bank's target and solidifying analysts' forecasts for a likely interest rate cut in the coming month. Headline consumer inflation fell to a three-year low of 4.6% year on year in July, down from 5.1% in June, according to data released by the country's statistics agency.

The South African Reserve Bank targets inflation around 4.5%, the midpoint of its 3% to 6% target range. With inflation consistently above this level since mid-2021, most economists polled by Reuters prior to the latest data had anticipated a 25-basis point rate cut in September, a scenario now seemingly more probable.

"The SARB has definitely run out of excuses to not cut interest rates and might have to consider a bigger cut," noted independent economist Elize Kruger. Month-on-month, inflation rose to 0.4% in July from 0.1% the previous month.

(With inputs from agencies.)