South Africa's small inflation rise leaves room for rate cuts, analysts say

Source: Reuters.

Headline consumer inflation rose to 3.0% year-on-year, up from 2.8% in May and in line with the median forecast of economists polled.

The South African Reserve Bank has cut its repo rate at four of its last five policy meetings as, since August 2024, inflation has been below the 4.5% level it aims for.

That is the centre of the bank's 3%-6% band and the bank, known for its caution, has repeatedly said it would prefer to lower the target.

Statistics South Africa said annual inflation for food and non-alcoholic beverages hit a 15-month high in June, a significant contributor to the higher headline rate.

Higher costs for rentals and utilities also drove inflation upwards, while fuel prices extended their decline for the fourth straight month.

Annabel Bishop, chief economist at Investec, said inflation was likely to rise towards 4% by the end of the year but the real interest rate was very high with the repo rate at 7.25% now.

"We expect at least one further 25 basis point cut in the repo rate this year," she said in a research note.

The central bank will announce its policy decision on Thursday, 31 July 2025, the day before President Donald Trump's 30% tariff on South African exports to the US is due to come into force.

Since the May policy meeting, analysts, business people and trade unions have lowered their inflation forecasts in a survey the central bank factors into its rate decisions.

David Omojomolo at Capital Economics said South Africa's struggling economy strengthened the case for policy easing.