(Bloomberg) -- South Africa’s inflation rate fell below 4% for the first time in more than three years, bolstering the case for policymakers to continue cutting rates.
Consumer prices rose 3.8% in September from a year earlier, compared with 4.4% in the prior month, Pretoria-based Statistics South Africa said Wednesday in a statement on its website. That matched the median of 15 economists’ estimates in a Bloomberg survey.
The rand erased gains to trade 0.5% weaker at 17.6269 per dollar as at 11:42 a.m. in Johannesburg. Yields on rand-denominated bonds due in 2035 increased to 10.66%, after rising about 60 basis points since the beginning of October.
The drop in the rate to the lower end of the central bank’s 3% to 6% target range, along with expectations that it may fall further, will likely persuade officials to cut the policy benchmark for the second time in a row on Nov. 21. A favorable food harvest and soft fuel prices are factors that are anticipated to help inflation slow further.
What Bloomberg Economics Says...
“Smaller annual food and fuel price gains will keep inflation below the midpoint of the South African Reserve Bank’s 3%-6% target over the next couple of quarters. This warrants additional 25-basis-point rate cuts in November and January, after a similar move in September.”
— Yvonne Mhango, Africa economist. To read more, click here.
Analysts in a Bloomberg survey conducted before the inflation data was released forecast a quarter-point cut next month — the same as in September. Forward rate agreements, used to speculate on borrowing costs, are pricing in a 92% chance of a reduction of that size.
“There is little need to accelerate the pace of policy easing” by the central bank, given it targets future inflation, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank.
The central bank in its biannual monetary policy review published last week said that while its policy stance is moderately restrictive and the disinflation process is on track, there’s lingering uncertainty about the outlook that requires the authorities to proceed with caution.
The main driver of the slowdown was softer transport inflation, helped by lower fuel prices. The category entered deflationary territory for the first time in 13 months, with prices falling 1.1% in September, compared with a 2.8% increase in August, the statistics agency said. Annual food and non-alcoholic beverages inflation was 4.7%, unchanged from August.
--With assistance from Simbarashe Gumbo, Mpho Hlakudi and Robert Brand.
(Updates with market moves in paragraph three and analyst comments in paragraph six)
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