/ 27 October 2010

SA inflation slows to new five-year low

South Africa’s consumer inflation slowed beyond market expectations to a five-year low in September, amplifying calls for another interest rate cut next month as prices continue surprising on the downside.

Statistics South Africa said CPI slowed to 3,2% year-on-year in September from 3,5% in August, below market forecasts of 3,4%. The annual reading is the lowest since June 2005.

On a monthly basis, inflation steadied at 0,1% in September, unchanged from August. Economists in a Reuters poll last week had forecast a tick up to 0,2%.

The South African Reserve Bank (SARB) had previously said it expected inflation to hit a low of 3,7% this quarter, before picking up in 2011 and 2012 but still remaining within its target band of 3% to 6%.

Analysts say this latest data, together with numbers on Tuesday showing unemployment remains high at 25,3%, backs the argument for another rate cut when the Monetary Policy Committee next meets in November.

“It is a bit of a downside surprise because we expected it to bottom at about 3,3% next month. It increases the odds of further monetary policy easing in November or January,” Sizwe Nxedlana, an economist at FNB said. “The reason for that is that the economy is pedestrian at best.”

The SARB has reduced the repo rate by 600 basis points in a cycle of cuts between December 2008 and September this year, in a bid to boost economic growth. — Reuters