SA factory-gate prices fall, back rate cut

South Africa’s producer prices fell by a record 3% year-on-year in May, data showed on Thursday, backing the case for an interest-rate cut later in the day.

Statistics South Africa said factory-gate inflation braked from a 2,9% increase in April, and dipped 1,1% on a monthly basis.

Economists polled by Reuters last week forecast that annual PPI would come in at -1,8%.

The numbers counter a smaller-than-expected slowing in consumer inflation on Wednesday, and point to a likely faster easing in the targeted gauge over the next few months.

The CPI rate for May came in at 8% and, while up on the consensus 7,9%, marked the third consecutive month of easing consumer inflation, although it remains well above the 3% to 6 % target band.

”A welcome surprise that it’s lower than expected following yesterday’s [Wednesday] somewhat disappointing consumer inflation data,” Barnard Jacobs Mellet economist Elna Moolman said.

”However, this doesn’t change our view that the Reserve Bank will cut rates today by 50 basis points.”

All but two of 26 economists polled by Reuters last week predicted a half percentage point cut in the repo rate to 7%, but most saw this as the last in the current cycle.

Reserve Bank Governor Tito Mboweni will announce the decision shortly after 3pm.

A faster-than-expected slowing in inflation could open the way for more policy easing, pleasing the trade union allies of the African National that are demanding action to stem job losses with the economy in recession.

Africa’s biggest economy is battling the impact of a global slowdown that has slashed demand for particularly manufactured and mining goods, while consumer demand is dwindling.

The central bank has already cut the repo by 450 basis points since December, including four full percentage point reductions at the previous four meetings.

Stats SA said imported commodities inflation stood at -16,7% year-on-year in May compared with -14,7% the month before, while exported commodities inflation was at -6% year-on-year from -2,7% previously. — Reuters

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