PW Botha's Rubicon speech triggered the worst price hikes seen in South Africa. Photo: GETTY IMAGES
  • The inflation rate is now below the Reserve Bank governor's target level of 4.5%. 
  • It's a far cry from the 1980s, when inflation came close to 21% following the infamous Rubicon speech.
  • But it was not enough to secure an interest rate cut later on Thursday.
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October’s consumer inflation numbers, announced on Wednesday, surprised economists by falling to 3.7% - the lowest rate since 2011.

It’s a far cry from the 1980s, when inflation came close to 21% following PW Botha's Rubicon speech in 1985. He was expected to announce reforms to end apartheid – instead he stuck to racist policies, which then triggered more economic sanctions and a rand crash.

Statistics SA published a graph chronicling South Africa's consumer inflation rate since 1950:

Source: Statistics South Africa

As recently as 2008, the average inflation rate for the year was above 10%. While widespread drought in 2015 and 2016 pushed food prices higher, inflation has since subsided from an average of almost 7% in 2016 – to around 4% so far this year.

This is below where Reserve Bank governor Lesetja Kganyago wants inflation to be (4.5%), and also below the official upper target of 6% for more than two years.

So in theory, this should have increased the chances that the monetary policy committee would cut interest rates this week.

Also, the economy is in a dismal state, desperate for any kind of boost.

There is a considerable chance that the local economy may have shrank in the third quarter. Manufacturing output fell by almost a percent in the third quarter compared to the second, with six of the ten manufacturing divisions reporting negative growth. Also, seasonally adjusted mining production decreased by 1.6% in the third quarter, with the output of platinum-group metals shrinking by more than 8%. Retail sales were flat in the third quarter compared to the second.

If the economy continues to shrink in the fourth quarter, which saw five days of load shedding, South Africa will officially be in a recession. The economy also contracted in the first quarter of 2018.

In the end, SA Reserve Bank's monetary policy committee again left the repo rate unchanged at 6.5% on Thursday. The prime rate will remain 10.25%.

Kganyago said three of the MPC's members voted to keep the rate unchanged, while two voted for a decrease of 25 basis points. 

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