For the second consecutive month consumer prices in South Africa have not risen mom. And the development is not due to seasonal effects either. Normally prices do not rise unusually notably or very little in September.
The yoy rate remains at 4.6% and is therefore still quite a way off the 6% the central bank expects for the coming quarters. Instead it would seem that the South African Reserve Bank might experience a positive surprise on the inflation front. That would no doubt suit the SARB very well as rate hikes would not work very well in the current economic environment.
"However, so far the market has assumed that the SARB would not allow inflation to get out of control. That means the lower inflation is only of limited benefit to the rand as it is unlikely to have much effect on real interest rates. Should inflation surprise notably to the downside over the coming months though the South African key rate of 6% would then be a reason to buy ZAR. For that to happen EM sentiment would have to remain positive though", argues Commerzbank.
