Bad news about inflation and interest rates in South Africa

South African annual inflation accelerated in September, moving further away from the central bank’s preferred 3% target and reducing the likelihood of an interest-rate cut when officials meet next month.

Consumer prices rose 3.4%, compared with 3.3% in August, Pretoria-based Statistics South Africa said in a statement on its website on Wednesday. That matched the median estimate of 12 economists in a Bloomberg survey.

“Annual inflation accelerated across several product categories, most notably transport and restaurants & accommodation,” the agency said. 

The pickup in inflation may persuade the central bank’s monetary policy committee to again keep its key interest rate at 7% on Nov. 20 to help guide inflation back toward its 3% goal, Bloomberg Economics Africa Economist Yvonne Mhango said before the release.  

Forward rate agreements — used to speculate on borrowing costs — are still pricing in a 60% chance of a cut at the MPC’s last meeting of the year.

The rand erased a gain, while benchmark 2035 government bond yields rose from session lows.

The MPC in July indicated a preference for inflation to settle at the floor of its 3% to 6% target band instead of the 4.5% midpoint. 

Reserve Bank Governor Lesetja Kganyago cautioned earlier this month that while inflation looks “relatively contained,” near-term overshoots are still expected. 

The central bank’s quarterly projection model sees inflation peaking at 4% this quarter before easing to 3% by end-2027.