South Africa Reports Tamer Inflation

South African consumer inflation fell to 4.6% year over year in July, data released today showed. That’s the lowest rate of inflation in the country since 2015 and compares to a 5.1% year over year rate in June. The biggest contributors the lower rate were decelerations in the price increases in transportation and housing.

The improved inflation picture will likely give the South African Reserve Bank greater flexibility in seeking to boost growth through monetary policy. A current recession in the country started back in March and the unemployment rate remains stubbornly high at 27%. Several factors have conspired to cause long-term structural unemployment in South Africa, including strong government support of unions, a high minimum wage, and a slumping commodities sector.

The country is also dealing with political choasĀ as President Jacob Zuma recently survived a recall vote driven by concerns about corruption and poor economic management of the country.

“Given the speed with which inflation has improved, markets may start to look at the likelihood of easing even before November, with the rand exchange rate likely to be a key variable,” said chief Africa economist at Standard Charted Razia Khan.

The rand is trading lower versus the U.S. dollar today by about 0.25% as traders build a more aggressive reserve bank into their forecasts.

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