Inflation eases to 5.5%

Johannesburg - South Africa’s consumer inflation slowed more than expected to 5.5% year-on-year in June from 5.7% in May, Statistics South Africa said on Wednesday.

On a month-on-month basis inflation quickened slighly to 0.2% compared to 0.1% in May.

Economists in a Reuters poll had expected CPI to ease to 5.6% year-on-year but quicken to 0.3% on a monthly basis.

Christie Viljoen, economist at NKC Independent Economists said: “The continued decline is good. I think it will stir demand from unions and businesses for lower interest rates but the Reserve Bank will keep in mind factors such as oil bouncing back and the jump in the maize price and rand weakness.

“Keeping in mind these factors, the downward trend cannot continue more than a few months and must turn around at some point.”

Said Kadd Capital economist Elize Kruger: “We are trending lower on CPI and my view is that we could be closer to 5% by the end of this year.

“I think the South African Reserve Bank (Sarb) will show a downward revision to their CPI forecast, but probably unchanged on interest rates.”

“Continuous moderation of the headline year-on-year CPI levels will alleviate the pressure on the Monetary Policy Committee’s (MPC) monetary policy decisions," said Anisha Arora an analyst at 4Cast.

“Inflation prices are dropping much faster than expected and combined with worsening prospects for domestic growth, this could prompt the MPC to cut interest rates in line with the central bank action across the more developed countries.” 

Inflation surprised the market by moderating to 5.7% last month, easing into the central bank’s 3%-6% target range after pushing outside the band in April, while economists had expected 5.95% on a year-on-year basis.

Reserve Bank governor Gill Marcus said last month inflation should remain within the 3%-6% target band through to 2014, with the main upside risks coming from a weaker rand, which hit a high of R8.71 in June.

The latest Reuters Econometer survey expects inflation to  average 5.72% this year and 5.35% in 2014.

Some in the market have started to price in the possibility that the bank could cut interest rates this year as inflation moderates.

The yield on the benchmark 2015 bond nudged higher to 5.725% at 08:20 GMT from 5.71% prior to the data at 08:00 GMT. The rand was steady at R8.1875 against the dollar.