LUCIA MUTIKANI, Johannesburg | Tuesday
SOUTH African producer prices are expected to have steadied in February after a fall in global oil prices, but the timing of anticipated cuts in interest rates still remains unclear, say analysts.
A poll forecast PPI rising by an unchanged 9.2% in the year to February, as gains in international oil prices over the past year starts falling out of the annual calculation. The data is due on Wednesday.
But the central bank has repeatedly warned that its three to six percent inflation target for 2002 remains under pressure from the ”twin challenges” of the rand’s depreciation – which raises the cost of imports – and stubbornly high fuel prices.
Both of these factors have kept producer prices at worryingly high levels, although so far they have not had a marked impact on consumer prices.
While many domestic economists expect interest rates to fall this year to spur the sluggish economy, they are adamant that this will not happen until the banks targeted CPIX inflation index is on a clear downward trend.
”Producer inflation is expected to decelerate in February mainly on a significant decline in oil prices during the preceding months,” said Standard Bank economist Igor Yankelevich.
”However, all is not well with PPI. The scale of the decline in oil prices is obstructed by imported inflationary pressure stemming from the rand’s weakness against most currencies.”
Since the start of the year, the rand has lost about 4.98% of its value against the dollar, hitting a fresh record low of 8.0725 against the US unit last Thursday.
Most analysts see little respite for the currency this year, despite expected capital inflows from privatisation and the planned takeover over diamond giant De Beers.
Analysts generally expect annual increases in the PPI index – which peaked at 10.1% in April 2000 and reached 10.0 in December – to subside steadily during the course of the year, provided the rand remains relatively steady.
But last week, news of a faster than expected rise in February consumer prices helped send the rand tumbling to its latest low, while bond yields fell. Headline CPI rose by 7.8% from 7.1% in January, while CPIX climbed by an unchanged 7.7%, defying forecasts of a slower rise.
”Interest rates will remain unchanged for the rest of this year. The focus will be on meeting the inflation target,” said Nedcor economist Magan Mistry.
The Reserve Bank left its key repo rate unchanged at 12.00% at its last Monetary Policy Committee meeting in mid-March, saying it would keep a close eye on inflation generated by oil prices and chronic rand weakness.
Domestic retail petrol prices will rise sharply in April.
Other figures due for release this week include February money supply and private sector credit extension (PSCE) data on Friday. Trade figures for February due on Friday are expected to show a surplus of R2.3bn versus a R3.5bn surplus in January.
Analysts expect M3, the broadest measure of money supply, to grow at an unchanged annual rate of 9.1%, while PSCE is expected to expand by 9.0% versus 8.31%. – Reuters