According to data from Statistics South Africa published on Wednesday, consumer inflation in South Africa slowed to 4.3% year-on-year for July, compared to 5% in June. This marked a break in a four-month period of accelerating prices.
Economists polled by Reuters expected inflation to fall to 4.5%, aided by reduced transport costs following a temporary truce between the US and Iran.
The current figure reduces the impact of the June jump to 5%, which was the highest since June 2024 and the fourth consecutive monthly acceleration after 3% in February. Fuel was the main driver of growth, as transport costs increased by 12.7% in June amid a 34.3% rise in fuel prices.
Month-on-month inflation stood at 0.2% in July versus 0.7% in June. Since South Africa imports most of its fuel, it is susceptible to fluctuations in global energy prices since the war in Iran began in late February.
This conflict forced the Reserve Bank to make its first rate hike in three years in May—an increase of 25 basis points, which raised the repo rate to 7% and the lending rate to 10.5%. The Monetary Policy Committee, meeting on July 23, kept the rate at 7%, although the vote was 4 to 2, with two members insisting on a further increase.
Governor Lesetja Kganyago has repeatedly ruled out the possibility of deviating from the 3% target set in November, which allows for a one percentage point deviation in either direction. Nevertheless, the July inflation rate of 4.3% still exceeds the upper limit of this range.
Implications for the technology sector
The next Monetary Policy Committee meeting is scheduled for September. Softer figures reduce pressure on the two committee members who advocated for tighter policy in July, although the sustainability of falling fuel prices depends on the truce, which both sides have called temporary.
Nigeria and Ghana also recorded lower inflation figures in July, with Ghana noting its first decline since March.
There is a direct link between rising inflation and consumer and business spending on technology services. Mobile operators adjust annual pricing based on the inflation rate, and contracts for fiber optic lines, hosting, and corporate software include CPI-linked escalation clauses, exacerbating any changes depending on what figure is set when the clause is triggered.
The base level of 4.3% is significantly cheaper for corporate IT budgets than 5%. The cost of financing devices and renting equipment is tied to the repo rate, which is now higher than projected in January, when the Reserve Bank's own forecasting model still showed a gradual decline until 2026.
For consumers, the easing of pressure on discretionary spending, visible in phone upgrade cycles and streaming service subscriptions, will only occur if this trend continues. As Sifundo Parakoz notes, 'One month is not an indicator of everything.'