South Africa's Inflation Drops Sharply in September

JOHANNESBURG (Reuters) – South Africa's inflation dropped sharply in September, hitting its lowest level in more than three years and bolstering expectations for another interest rate cut by the central bank next month.

Annual consumer price inflation slowed to 3.8% from 4.4% in August, according to Statistics South Africa.

Economists polled by Reuters had forecast inflation to drop to 3.9%, well below 4.5% – the mid-point of the South African Reserve Bank's 3%-6% target range.

The Consumer Price Index (CPI) rose 0.1% month-on-month in September, the same as in the previous month.

"Inflation is well under control in South Africa; this is really the start of a period of about 6 months in which the headline CPI should be below 4%," said independent economist Elize Kruger.

The central bank maintained a cautious approach at its September meeting, trimming its main interest rate by 25 basis points to 8%, citing lingering risks ahead.

Analysts expect the bank to continue easing policy in quarter-point increments, potentially lowering the repo rate to 7% by the mid-next year.

"Larger 50 bps moves are unlikely in our view," said Razia Khan of Standard Chartered, highlighting the importance of monitoring global risks and the impact of South Africa's recent Two Pot Pension Reforms allowing earlier pension withdrawals.