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Johannesburg - The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank (Sarb) for its inflation target, was 3.7% year-on-year (y/y) in July from 4.2% in June, Statistics South Africa said on Wednesday.
It remains well within Sarb's target band of between 3% and 6%.
CPI was at 0.6% month-on-month (m/m) from 0.0% m/m in June.
The CPI was expected to have decreased to 4.0% y/y, according to a survey of leading economists by I-Net Bridge, with forecasts among the seven economists ranging from 3.8% to 4.1%.
"Despite the roughly 25% year-on-year increase in electricity prices, which added 0.5 percentage points to the monthly increase, inflation still fell
below 4% in July - its lowest level since July 2006 and well below market expectations," said Nedbank economist Carmen Altenkirch.
Inflation is expected to remain below 4% during the next three months, due to the strength of the rand, weak domestic and foreign price pressures and a further moderation in services inflation.
"Thereafter, inflation is expected to pick up slightly ending the year just above 4%, as some degree of opportunistic pricing re-emerges.
"Today's inflation figure adds further evidence to the case in favour of a further interest rate cut in September. The weaker growth picture, coupled with a subdued inflation outlook and a very strong rand, will also weigh strongly on the decision to lower rates one last time this cycle."