Inflation eases to 4.3% but higher oil prices could keep pressure on South Africans
Food prices are providing some breathing room, but fuel and weather remain important upside risks to the inflation outlook.
South Africa's inflation rate slowed to 4.3% in July, down from 5% in June, the first decrease in five months. This easing was driven by lower food prices, particularly in agriculture and grains, despite rising oil prices. Annabel Bishop, Investec's chief economist, believes inflation may have peaked, with favorable weather and bumper harvests providing a buffer against higher oil prices.
However, the El Niño weather pattern is expected to strengthen, raising concerns about drought and flooding, which could impact agricultural conditions. Despite this, South Africa enters the period with relatively high soil moisture and dam levels, and strong grain and oilseed harvests. The current El Niño is forecast to run from August to February or March next year.
While headline inflation has fallen, core inflation, which excludes food and energy, has edged up to 4.2% in July, indicating underlying price pressures remain. This supports the South African Reserve Bank's decision to raise the repo rate to 7%.
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