Rate cuts still on the table despite inflation creep
South Africa's consumer inflation rate rose slightly to 3% in June, up from 2.8% in May, driven by rising food and housing costs.
Despite the uptick, economists say the data support the case for an interest rate cut at the Reserve Bank’s upcoming Monetary Policy Committee (MPC) meeting.
According to Statistics South Africa, the rise was primarily fuelled by higher food and non-alcoholic beverage prices, which accelerated to 5.1% - the highest rate in 15 months.
Meat, especially beef, and fresh produce such as beetroot and carrots, were among the main culprits.
Econometrix chief economist Azar Jammine said the increase was expected, particularly as fuel prices are no longer dropping as sharply as a year ago.
"The CPI inflation rate for June showed an increase for the first time in a few months to 3% from 2.8% in May. However, such an increase had already been anticipated… the prevalence of foot and mouth disease in the food industry has caused meat prices to rise very sharply."
He added that while food inflation is a burden, especially for low-income households, the situation is not as dire as it was during the peak of the post-COVID price crisis.
"Rising at the rate of 4.5% per year at the moment is not catastrophic by any means… But yes, it is severe on low-income people who depend on social grants."
Still, the so-called core inflation rate, which excludes food and energy, fell to 2.9% from 3.0%, indicating relatively contained price pressures.
FNB senior economist Koketso Mano echoed the view that the inflation increase was modest and unlikely to prevent rate relief.
"Food and alcoholic beverages inflation lifted to 5.1% from 4.8% previously… We think there’s probably space for one more 25-basis-point cut before the end of the year," said Mano, projecting that the next cut could come as early as September.
Mano said rising utility tariffs and a potential monthly increase in fuel costs could push July inflation to 3.6%, but overall price levels are expected to stay within the Reserve Bank’s 3–6% target range.
Standard Bank's Dr Elna Moolman added that the current low inflation offers some breathing room for consumers and policy makers alike.
"Such low inflation provides considerable support for consumers… It also arguably supports the case for the Reserve Bank to cut interest rates further at the upcoming MPC meeting."
Economists generally agree that inflation will remain benign over the medium term, despite short-term pressures—particularly in the food sector due to local supply constraints like foot-and-mouth disease and heavy rainfall in key agricultural regions.
The Reserve Bank is expected to announce its interest rate decision next week, and market watchers will closely monitor whether it signals the start of a gradual rate-cutting cycle in the second half of 2025.
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