Increases in South African factory gate prices slowed in the year to October, data showed on Wednesday, boosting hopes the central bank will leave interest rates steady at its policy meeting this week.
Statistics South Africa said the all-commodities producer price index (PPI) rose by an annual rate of
14,6% after increasing 15,4% in September — just a
notch below consensus forecasts of a 14,7% rise.
Economists said that the data added to evidence that
producer prices — which tend to lead consumer
inflation by two to three months — may have peaked after climbing steadily so far in 2002, pointing to lower inflation in the months ahead. ”I think overall it confirms the PPI has peaked and is unwinding and it should make the South Africa Reserve Bank’s MPC
feel more comfortable about leaving rates on hold tomorrow, which is what we expect…,” JP Morgan analyst Tary Rebeck said.
The Reserve Bank holds its regular monetary policy committee meeting on Wednesday and Thursday. It is widely expected to leave the repo rate unchanged at
13,50%, after raising it by 400 basis points this year in a bid to quell inflationary pressures triggered by the rand’s historic plunge in 2001.
There are also mounting hopes that interest rates will start falling early next year, as inflation starts to subside. ”There will probably be very little market response because the figures were in line with market expectations. PPI has peaked and we could have an interest rate cut early next year,” SCMB economist Philip Clayton said.
Government bonds rallied on the data, with yields on the benchmark R153 bond, due 2010, falling by 10
basis points to 10,73% after the news. Yields on the
short-dated R150 fell by eight basis points to 11,12%. Statistics South Africa said the annual increase in the import component of PPI braked sharply to 15,6% from 16,7% in September, while the domestic component slowed to 14,2% after gaining a previous 14,9%. – Reuters