JOHANNESBURG, Sept 23 – South Africa’s headline inflation increased slightly in August, rising to 4.4% year-on-year from 4.3% in July, but remained below economists’ expectations, according to Statistics South Africa data released on Wednesday.
Most economists expected the central bank to raise its benchmark interest rate by 25 basis points to 7.25%, with the Monetary Policy Committee scheduled to announce its decision at around 3 p.m. local time.
The Reserve Bank targets inflation at 3% and has increasingly focused on the forward inflation outlook when setting policy. The central bank unexpectedly left rates unchanged in July, saying its existing policy stance remained sufficiently restrictive to bring inflation back toward target over the following two years.
Johann Els, chief economist at PSG Financial Services, said the August data were unlikely to affect the decision because the MPC had already completed its forecasting and modelling work.
“This has no impact on the MPC (Monetary Policy Committee) decision that we will hear later today. The MPC concluded its forecasting and modelling runs last week already,” Els said.
The August increase was driven primarily by higher prices in housing and utilities, transport, and insurance and financial services, according to Statistics South Africa.
Food and non-alcoholic beverage inflation remained relatively subdued at 1.1%, with strong agricultural production expected to help contain food-price pressures. However, the outlook remains subject to weather risks, including the potential effects of an anticipated El Niño event.
Underlying price pressures also eased during the month. Core inflation, which excludes volatile components such as food and energy, declined to 4.1% in August from the previous reading and came in slightly below the 4.2% economists had forecast.
The combination of slightly higher headline inflation and softer core inflation leaves the Reserve Bank focused on the medium-term path of prices as it assesses the pace at which inflation can return sustainably toward its 3% target.
