OWN CORRESPONDENT, Cape Town | Wednesday 3.35pm
PRODUCER inflation slowed significantly in September, according to data released on Wednesday, pleasing financial markets and brightening the outlook for further interest cuts next year.
Statistics South Africa said that the producer price index rose an annualised 5,7% last month from 5,9% in August, beating the consensus of analysts estimates and lifting the market in government bonds.
”The data for local produce is very benign… It will reinforce the downward trend of inflation and remind the market that…there is further scope for interest rates to ease, which is encouraging for bonds,” said Peter Worthington at JP Morgan.
Analysts had forecast PPI rising 6,1% in September.
Government debt rallied on the news, pressing yields to 14,17% on the benchmark R150 issue, due 2005, from 14,25% before the release. The rand hovered at an unchanged R6,15 against the dollar.
ING Barings chief economist Kristina Quattek said that 1,1% monthly rise in imported producer price inflation was the result of a 1,1% monthly rise in the mining and quarrying component. Once again the increase in the average price of imported petroleum pushed overall imported inflation upwards. But there is concern that the higher cost of oil imports had not appeared in the data and economists cautioned this might emerge next month. North Sea Brent crude has averaged over $16 per barrel this year compared with $13 in 1998.
”We shouldn’t get too excited because higher oil-rand prices have not fully fed through. We expect PPI of 6% for the rest of the year,” said Magan Mistry at Nedcor in Johannesburg.
South Africa’s headline consumer inflation rate slowed to a monthly 1,9% in September — its lowest level in 31 years — and the slowdown in PPI is further good news for the country’s fragile economy and cash-strapped borrowers.
South African prime lending rates have been pegged back to 15,50% from a 25,50% late last year, but are still high in real terms and economists reckon they will fall again early in the new year. — Reuters