Just in: Inflation drops to the lowest it’s been in eight years

In what’s been seen as a bit of a bittersweet development in South Africa’s economy, Statistics SA announced that, in October, consumer inflation dropped below the midpoint of the South African Reserve Bank’s (SARB) 3%-6% target range.

Stats SA: South Africa’s inflation drops significantly in October

In a report published on Wednesday, Stats SA revealed that October ended with consumer price inflation at 3.7%, down from 4.1% in September. This, the stats authority revealed, is “the lowest rate since February 2011 when the annual rate was also 3.7%.”

As reported by Business Day, this is the fourth consecutive turnout where the rate of inflation hits below the Reserve Bank’s midpoint target range.

Much of the gains made in October can be attributed to increases made in the food and non-alcoholic beverage sectors. These are the year-on-year positive gains that were achieved by the sectors that effectively contributed to the record low inflation rate:

• food and non-alcoholic beverages: increased by 3.6% and contributed 0.6 of a percentage point to the total consumer price index (CPI) annual rate;
• housing and utilities: increased by 4.8%, contributing 1.2 percentage points; and
• miscellaneous goods and services rose by 5.7%, contributing 0.9% percentage points.

Does this promise a cut in the repo rate?

The question on every economist’s mind right now is: will the Reserve Bank be motivated to cut the repo rate?

While this development promises to be a boost for the economy, caution has been advised on how this may have a negative impact on the rand.

In the end, foreign investors are attracted to high yields and the low inflation could negatively affect South Africa’s bonds. A more pressing matter is the news expected to come from the Reserve Bank on the current standing of the repo rate.

Nico Du Plessis, an Analyst at Mercato Financial Services told the cited publication that as positive of a feat this may be for our economy, it does not offer much justification for the Bank to cut the repo rate this week.

The Reseve Bank is expected to deliver its monetary policy decision, on Thursday, and economists expect it to keep the rate unchanged at 6.50%.