By Anathi Madubela
JOHANNESBURG, Feb 18 (Reuters) – South Africa’s inflation rate eased slightly in January and economists expect it to remain subdued, keeping the door open for more interest rate cuts by the central bank.
Headline consumer inflation slowed to 3.5% year on year in January, down from 3.6% in December.
Analysts polled by Reuters had expected annual inflation would come in at 3.4% in January.
The modest slowdown keeps headline inflation within the 1 percentage-point tolerance band of the central bank’s 3% target.
A breakdown by Statistics South Africa showed the main contributors to January’s inflation rate were housing and utilities, food and non-alcoholic beverages, and insurance and financial services.
Investec’s chief economist Annabel Bishop said inflation was expected to be near 3.0% year on year in February and March before dipping below 3.0% in the second quarter.
She said markets were expecting the central bank to cut its policy rate by 25 basis points at its March 26 rate-setting meeting, in line with her bank’s view.
But Jason Tuvey at Capital Economics said a further uptick in core inflation could make the central bank hesitant to cut rates in March.
Further out, spare capacity in the economy, lower oil prices and the strength of the rand currency mean his research firm expects 100 basis points of rate cuts over the course of this year, he added.
Annual core inflation, which strips out volatile items like food and energy, came in at 3.4% in January, its highest reading in 11 months.
(Reporting by Anathi Madubela; Editing by Alexander Winning and David Holmes)