/ 25 August 2010

Consumer inflation at four-year low

South Africa’s targeted measure of annual consumer price inflation slowed more than expected in July, official data showed, backing the case for an interest-rate cut on September 9.

Statistics South Africa said on Wednesday CPI (consumer price index) slowed to 3,7% year-on-year, its lowest since April 2006. It braked from 4,2% in June and was lower than market expectations of 4%t.

On a month-on-month basis, CPI quickened to 0,6%, from 0% in June, and also lower than the 0,9% expectation.

The central bank targets annual CPI increases of 3% to 6%, and actual data has been within this band since February.

Bond yields fell to new multi-month lows after the CPI release, as the market bet the central bank will cut the repo rate further from 6,5%, to add to 550 basis points worth of reductions since December 2008.

The CPI figures come a day after data showed the economy slowed more than expected in the second quarter, with analysts seeing a further slowdown in the third quarter.

“Looking ahead we expect that inflation will remain below 4% over the next three months, mainly due to the strength of the rand as well as weak domestic and foreign price pressures,” said Carmen Altenkirch, economist at Nedbank.

“The inflation figure today [Wednesday] also strengthens the case for further monetary easing in September — this along with the weak growth picture coupled with the very subdued inflation outlook as well as the strength of the rand,” she added. — Reuters