MARIAM ISA, Pretoria | Wednesday
SOUTH Africa’s main inflation rates all rose more slowly than expected in October, vindicating the central bank’s decision last week to leave interest rates on hold.
But hopes that there would be no need for the central bank to raise rates again in the months ahead were dampened as the volatile rand hit a new low of 7.8290 to the dollar in a market unsettled by Middle East violence and emerging market concerns.
The rand’s latest dip against the dollar took its losses against the US unit this year to more than 23%. It has also lost ground against the pound and the euro this week, raising the risk of upward price pressure from more costly imports.
South African bonds took the rand’s woes in their stride, with yields edging back up to Monday’s closing levels of 12.570% after initially firming to 12.53% on the data.
Official figures showed that the key consumer price index rose by 7.1% in the year to October, higher than a 6.8% increase in September but well below consensus forecasts of a 7.3% rise.
More importantly, the figures from Statistics South Africa showed that the annual measures of core inflation and the bank’s targeted measure known as CPIX were both flat, at September’s levels of 8.1% and 8.3% respectively.
The benign figures showed that so far there was no sign of second-round price effects from the weaker rand and stubbornly high global oil prices, fanning optimism that domestic inflation may have peaked.
South African economists are divided on whether the central bank’s unexpected decision to raise its key repo rate by 25 basis points to 12.00% on October 17 will be followed by further rate hikes in the months ahead.
Many believe that the sluggish pace of growth in the overall economy and weak consumer demand provide scope for interest rates to fall further next year from peaks seen during the emerging markets crisis of 1998.
Producer price figures for October due this week will be closely watched for further clues, after the central bank’s warning last week that these were starting to have an impact on that key inflation indicator. – Reuters