Latest inflation figure leaves more room for rate cut, predicts economist
The easing of consumer inflation in July has strengthened the case for a repo rate cut in September.
On Wednesday, Statistics South Africa announced that CPI had dropped to 4.6% in July, down from 5.1% recorded in June.
July's reading is the lowest since July 2021, when the rate was also 4.6%.
Azar Jammine, chief economist at Econometrix, said the easing of headline consumer inflation could prompt the Reserve Bank’s Monetary Policy Committee to take the plunge and confirm what is expected to be the first in a series of repo rate cuts.
Jammine said the government should gradually cut interest rates to keep inflation in check.
“This is really good news because the inflation rate declined by significantly more than had been expected. An outcome of 4.8% or 4.9% had been anticipated. I think that this creates more room for the Reserve Bank to reduce the repo rate at its forthcoming Monetary Policy Committee meeting next month.
“What the government can do to keep inflation moving down is to not cut interest rates too far, too fast. Secondly, the government needs to consider reducing the inflation target to 3% or so in order to influence inflation expectations in a downward direction.”
Jammine warned consumers to stick to their budgets and avoid overspending if they have some extra cash available.
“I would warn consumers not to believe that this is anything of a bonanza coming their way. Consumers have been taking increased strain in the last 18 months simply because interest rates have remained as high as they have been for an extended period of time. There is a nice reprieve, but it’s certainly not enough to create the space for a spending boom.”
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