South Africa’s annual headline inflation came in softer than expected in April, bolstering the view of a minority of analysts who expect interest rates to remain on hold throughout this year.
Statistics South Africa said on Tuesday CPI inflation edged up slightly to 4,2% year-on-year in April from 4,1% in March. The market was expecting CPI to quicken to 4,4%.
On a month-on-month basis, CPI slowed to 0,3% from 1,2% in March, also lower than forecasts of 0,5%.
Government bonds firmed after the data, with the 2015 yield falling to 7,7% from 7,74% and that on the 2026 issue easing to 8,695% from 8,715%.
“I think it will set the trend for what we’ll see in the second half of this year, where inflation surprises forecasters to the downside,” said George Glynos, managing director at ETM.
“It’s why we believe rate hikes, if there are any, will be pushed out to well into 2012.”
The central bank last week raised its inflation forecasts and said inflation would briefly pierce its 3%-6% target band next year, peaking at 6,3% in the first quarter of 2012.
The bank said inflation was mainly driven by food and fuel prices, but stressed it would be “vigilant” about price pressures emanating from increasing domestic demand.
The hawkish comments saw bonds weaken as investors started to price in a rate rise sooner rather than later. The central bank next meets in July, followed by September then November.
The central bank has left rates steady this year after reducing the repo rate by 650 basis points to 5,5% between December 2008 and December 2010.
The rand weakened slightly after the inflation data. It was trading at R7,01 against the dollar from R6,9960 before the release at 8am GMT. — Reuters