Core inflation rate declines to lowest since 2011

South Africa’s core inflation rate fell to the lowest in almost eight years in September, leading to a decline in the annual headline reading, which could raise pressure on the central bank to cut its benchmark rate.

Growth in core consumer prices, which excludes the cost of food, non-alcoholic beverages, fuel and electricity, slowed to 4% last month from a year earlier, compared with 4.3% in August, the Pretoria-based Statistics South Africa said Wednesday in a statement on its website. It makes up about 16% of the inflation basket.

The annual headline inflation rate fell to 4.1% in September, marking the 30th consecutive month that inflation has remained within the central bank’s target range. The median estimate of 16 economists in a Bloomberg survey was 4.3%.

Key insights

• The cost of goods set by the state — such as power, water, and gasoline — has largely driven increases since last year. The slowdown in core inflation shows that underlying price pressures in the economy are receding.
• While inflation has remained at or below the 4.5% midpoint of the central bank’s target band of 3% to 6% every month since December — the longest such streak in more than eight years — deteriorating fiscal metrics may limit the scope for another interest rate cut this year. Investors pay a premium for South
• African debt to compensate for the risk of holding it and this constrains monetary policy by raising the interest rate needed to stabilise inflation, the central bank said this month.
• The Reserve Bank’s Monetary Policy Committee sees price growth averaging 4.2% in 2019. Its quarterly projection model shows the benchmark interest rate staying at 6.5% for the rest of the year. Future rate decisions will remain data-dependent, the committee said in September.
   

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