Could this be the beginning of a lower inflation cycle? South African Inflation Slows For First Time in Three Months

Johannesburg October 1, 2020. According to the South African Reserve Bank, the South African inflation slowed for the first time in three month in August, remaining close to the bottom of the reserve bank’s target range.

The consumer prices index (CPI) rose 3.1% from a year earlier, compared with 3.2% in July, according to Statistics South Africa  in a statement on its website on Wednesday September 30th 2020.

Key Points

  • The decrease in inflation could  provide some room for the central bank to ease policy further in November, if the outlook for the economy continues to deteriorate. The monetary policy committee kept its key rate at 3.5% earlier this month after 300 basis points of easing and said inflation will remain close to the 4.5% mid point of its target range in 2021 and 2022.
  • The benign outlook will allow monetary policy to remain accommodative for most of the next two years and for stimulus to be withdrawn in a gradual fashion, Fundi Tshazibana, a deputy governor of the central bank, said last week.
  • Core inflation, which excludes the prices of food, non-alcoholic drinks, fuel and electricity, quickened to 3.3%, the highest level since March, from 3.2%.
  • Further easing of lockdown restrictions in August meant all items — except sports tickets — that are included in the inflation basket were available for sale. Substituted values were used for products including alcohol that weren’t legally available for sale during parts of July and August’s lockdown. Banned products comprised 4.1% of the weight of the headline index.
  • As South Africa cautiously moves into lockdown level 1 with almost all of the economy open, economic activity would gradually pick up and this could have an impact on inflation

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