Good news for inflation in South Africa

South African inflation unexpectedly eased to a three-month low in August on the eve of a widely expected interest-rate pause.

Consumer prices rose by an annual 3.3% from 3.5% in the prior month, Pretoria-based Statistics South Africa said in a statement on its website on Wednesday. Only two of 13 economists in a Bloomberg survey expected price growth to slow.

Most economists in a separate survey conducted before Wednesday’s data release expected the monetary policy committee to keep the key rate at 7% on Thursday, after a 25-basis point cut at its previous meeting.

The MPC will be reluctant to lower rates to avoid undermining its new inflation goal, Yvonne Mhango, an Africa economist for Bloomberg Economics, said ahead of the release.

In July, the MPC announced it now prefers inflation to settle at the bottom of its target band of 3% to 6%, rather than the midpoint.

David Fowkes, a panel member and adviser to the governors, said it may take three years to anchor expectations at that level.

Average inflation expectations two years ahead — the MPC’s preferred gauge for decision-making on interest rates — fell to 4.2% in the third quarter from 4.5% previously, the lowest level since 2005.