South African Inflation Rate Falls to Six-Month Low in March

JOHANNESBURG (Capital Market in Africa) – South Africa’s inflation rate fell to a six-month low in March after food prices climbed at the slowest rate in 13 months.

Consumer inflation eased to 6.1 percent from 6.3 percent in February, Statistics South Africa said in a report released Wednesday in the capital, Pretoria. The median estimate of 15 economists surveyed by Bloomberg was for 6.3 percent. Prices climbed 0.6 percent in the month.

The central bank’s Monetary Policy Committee has kept the benchmark rate unchanged since last March after raising it by 200 basis points to 7 percent over two years to bring price growth back to within its target band of 3 percent to 6 percent. Inflation has been outside the range for seven months. The scope for interest-rate cuts is limited even as the policy-tightening trajectory may be over, the bank said April 11.

“We expect that headline inflation will continue to ease over the coming months,” John Ashbourne, an economist at Capital Economics Ltd., said in an emailed note. “Despite recent political turbulence, the rand is still stronger than it was a year ago.”

Five-year breakeven rates, a measure of inflation expectations, have climbed 20 basis points to 5.85 percent since reaching an almost two-year low on March 22. While the rate remains within the inflation target, the rand erased almost all its gains for 2017 after President Jacob Zuma recalled Pravin Gordhan from an international investor roadshow in the U.K. and then fired him as finance minister, driving up price expectations.

Prices of food and non-alcoholic beverages, which make up about a fifth of the basket of goods measured, rose 8.7 percent from a year earlier, the slowest rate since February 2016.

The economy expanded 0.3 percent last year, the slowest pace since a 2009 recession, due to a slump in commodity prices, weak demand for the country’s exports and a continuation of the worst drought since records began in 1904. The nation’s corn crop is forecast to rebound in 2017, slashing prices.

Prices of food and non-alcoholic beverages, which make up about a fifth of the basket of goods measured, rose 8.7 percent from a year earlier, the slowest pace of increases since February 2016.

The rand was little changed at 13.2948 per dollar by 2:10 p.m. in Johannesburg on Wednesday, paring its gain for 2017 to 3.3 percent. Yields on rand-denominated government bonds due December 2026 erased an earlier increase, dropping 4 basis points to 8.80 percent.

Core inflation, which excludes food, non-alcoholic beverages, energy and gasoline, slowed to 4.9 percent from 5.2 percent in February. The median of nine economists’ estimates was for 5.3 percent.