Bureau for Economic Research (BER) economists expect headline consumer price inflation (CPI) to drop below 5% for the first time in almost 12 months when the latest economic data is released next week.
According to the BER Weekly Review, economists forecast that the CPI print for July, which is due to be released on Wednesday, is likely to show a cooling down of inflation, which may bode well for the economy as it could give the SA Reserve Bank (Sarb) room to cut interest rates.
“We expect headline CPI to dip below 5% for the first time since August 2023. We see CPI slowing to 4.9% y-o-y, from 5.1% in June, with core CPI steady at 4.5%,” the BER economists said.
They expect headline CPI to moderate throughout the remainder of the year and reach the Sarb’s 4.5% midpoint target in September.
“The lower inflation profile will give the Sarb scope to cut its policy rate next month. For now, our forecast is for a 25bps cut, but we can see a possibility of the Sarb frontloading by 50bps in September,” the economists forecast.
“For this to materialise, the rand exchange rate would need to ‘behave’ – with higher probabilities of faster US Federal Reserve easing possibly helping in this regard – and the oil price should not spike up on a sustained basis.”
Market developments, global monetary policy dynamics and the actual inflation prints for July and August, the day before the September Reserve Bank meeting, will help to shape this view.
“Services inflation trends will be particularly important. The BER’s inflation expectations survey out on September 12 is also key. If expectations are sticky, a bigger cut is unlikely, but we do know the Sarb targets 4.5%, and inflation is heading there and, for now, likely to stay there, so some easing from the current restrictive stance is warranted,” the economists said.
On the international calendar, the US Fed will release minutes from its previous meeting midweek.
