Producer inflation for July grew more slowly than in June, while consumer inflation was lower than expected, Statistics South Africa figures showed this week. The figures point to a positive inflation outlook for the rest of this year.
On Thursday, Statistics South Africa reported that the producer price index (PPI) grew by 0,7% for the year to July, down from 1,2% in June. Producer inflation serves as a lead indicator for consumer inflation.
The rand’s strength was evident in the imported producer inflation component, which fell by 2,8%, while producer inflation for locally produced goods rose by 1,9%.
On Wednesday Statistics South Africa reported that CPIX (inflation minus mortgage rates) for July rose 4,2%, below market expectations for the sixth month in a row.
Merrill Lynch economist Nazmeera Moola attributed the “positive surprise” to a decline in food prices and “well-behaved prices across the board”. Moola added that the decision somewhat vindicated the Reserve Bank’s decision to cut interest rates two weeks ago. Commentators went as far as suggesting that the figure opened the door for another rate cut when the Monetary Policy Committee reconvenes in October.
Moola said another cut would depend on the rand’s performance. If it stayed below R6,40, it would allow for a 50 basis-point cut, while any movement above R6,70 would be a signal to keep rates on hold.
The rand started the week under the whip after last Friday’s Reserve Bank figures showed that the current account deficit for the second quarter stood at R49-billion, or 3,7% of gross domestic product.
The news reportedly shocked the markets, and the rand weakened to a three-month low of R6,70. It regained some ground durring the week, to trade at R6,68 by noon on Thursday.
On Tuesday Reserve Bank Governor Tito Mboweni said the economy grew 3% in the first half of this year.