Finance: Lower Inflation Paves the Way for Interest Rate Cut
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Since February this year, inflation has dropped every month, from the 8,6% in February to 6,9% in June and the current 6,7%. “The latest inflation figure corresponds to economists’ general predictions, and the influence of the electricity tariff hike is already clearly visible. On a month-to-month basis, the increase in the electricity price was 21,5%. This has contributed to the inflation increase in housing and utilities, which is now calculated to stand on 8,2%,” explained Solidarity spokesperson Jaco Kleynhans.
Although the latest level of food inflation is still above the average inflation level, Solidarity believes that there is already good improvement in this area. “Food inflation is currently at 7,6%, compared to the 9,8% in June this year. This is a significant improvement on the January food inflation level of 16,1%,” Kleynhans said.
“The drop in inflation still has to be better reflected in interest rate adjustments and the South African Reserve Bank will definitely have to let the positive inflation progress filter through by means of an interest rate cut when the Monetary Policy Committee meets again in September. There are already several indications that the worst storms in the economy are over for the time being. Nevertheless, consumers and some companies are still struggling and a further interest rate cut would help provide the necessary relief. The improvement of food inflation and the strengthening of the rand will place positive pressure on the Monetary Policy Committee for an interest rate cut.”
“Although the effect of the rise in electricity tariffs earlier this month was one of the Monetary Policy Committee’s biggest concerns and could have placed pressure on a possible interest rate cut, the figure has now, however, already been included in the latest inflation figure. Therefore, inflation could again continue its downward trend by next month,” Kleynhans stated.
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