South Africa’s inflation rate fell to 3.8% in September 2024, its lowest in over three years, supporting the case for additional interest rate cuts by the South African Reserve Bank (SARB). This drop, within the SARB’s target range of 3-6%, aligns with economist forecasts and reflects favourable conditions in fuel and food pricing. Lower transport inflation was a significant contributor, with fuel prices decreasing, bringing the annual transport inflation rate to -1.1%, a deflationary level not seen in over a year.

This downward trend in inflation may prompt SARB policymakers to implement another 25-basis-point rate cut at their upcoming meeting in November, a move currently priced with a 92% probability by forward rate agreements. Patrick Buthelezi of Sanlam Investments suggests inflation could reach 3% by December, advocating for more decisive rate cuts. However, SARB remains cautious, with its recent monetary policy review signalling a restrained approach due to ongoing uncertainties in the economic outlook.

Despite the easing inflation, SARB maintains a slower pace than the U.S. Federal Reserve. Frank Blackmore of KPMG noted that SARB’s cautious stance contrasts with the Fed’s more aggressive rate adjustments, indicating SARB’s preference for gradual policy shifts to manage inflation steadily.

The reduced inflation rate did not notably impact the rand, which traded around R17.57 to the dollar, or bond yields, which held at 10.63% for 2035-maturing bonds. With food and fuel price stability continuing, South Africa’s inflation may moderate further, offering SARB more flexibility in easing its policy cautiously.