SA consumer inflation slows further

JOHANNESBURG, SOUTH AFRICA - Jul 28 2010 13:22

South Africa's consumer inflation slowed more than expected in June, official data showed on Wednesday, leaving the door open for another rate cut before year-end.

Statistics South Africa said on Wednesday consumer inflation slowed to 4,2% year-on-year in June from 4,6% in May, beating forecasts of 4,5%. Inflation slowed for the sixth consecutive month.

The Consumer Price Index (CPI) was unchanged on a monthly basis after rising 0,2% in May, which was also lower than expectations of 0,3%.

Food costs, a previous driver of inflation, were still showing a downward trend.

"[Food has] been the single biggest factor in keeping inflation well under control," said Kevin Lings, chief economist at Stanlib.

The South African Reserve Bank (SARB) expects inflation to remain within its target band of between 3% and 6% until end-2012.

The SARB left the repo rate unchanged at 6,5% last week and warned about the impact of high wage demands on inflation after reducing rates by 550 basis points between December 2008 and March 2010.

The central bank said although the local economic recovery was continuing, signs pointed to a less favourable growth outlook in the second quarter, after the economy exited its first recession since 1992 in quarter three of 2009.

"[The CPI print] certainly does look like a good number ... in that regard it would actually improve the possibility of a rate cut depending on the reasoning behind it," said Dennis Dykes, chief economist at Nedbank. -- Reuters

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