/ 29 July 2009

June inflation slows to 6,9%

South Africa’s targeted consumer inflation slowed sharply to 6,9% year-on-year in June, below expectations, from 8% in May, official data showed on Wednesday.

Statistics South Africa said headline CPI inflation stood at 0,4% on a monthly basis in June compared with 0,4% the previous month.

A Reuters poll of 17 economists forecast CPI would slow to 7,1% year-on-year and come in at 0,6% on a monthly basis.

Carmen Altenkirch, a senior economist at Nedbank, said the figure was slightly below market expectations and added to the case for further interest-rate cuts.

”The main contributors to the monthly increase in inflation are likely to have been food and fuel as well as owner’s equivalent rent. Inflation is expected to ease further over the coming months. Unfortunately, second-round effects are now well entrenched in the economy, making prices extremely sticky. The recent round of above-inflation wage inflation is certainly not helping maters either — and will add to inflationary pressures in the economy. However, the rand’s recent strength is likely to go some way to mitigating these effects.”

Mike Schussler, director of Economists.co.za, said the figure was good news, ”although we have to be careful that this is the time of year that a technical downswing would probably have taken place anyway, but nevertheless I am very pleased with that figure as it should give us a bit of room for a 50 basis points cut later in the year”.

Doret Els, economist at Quantum Asset Management, said it was a good figure, and below consensus.

”Last year in June the figure was 10,7%. However, I don’t foresee inflation going below 6% this year, maybe towards the second half of next year. The double-digit wage negotiations and inflation expectations that exceed 8% for the next two years will make it difficult for inflation to go below 6%.

”I foresee inflation remaining sticky around these levels for the rest of the year.” – Reuters, I-Net Bridge