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Inflation quickens to 6.1%

May 23 2012 10:51

Johannesburg - South Africa's consumer inflation quickened slightly to 6.1% year-on-year (y/y) in April from 6.0% in March, breaching the top end of the Reserve Bank's target band once again, Statistics South Africa data showed on Wednesday.

On a month-on-month (m/m) basis, inflation slowed to 0.4%, as expected, compared to 1.1% in March.

Economists polled by Reuters last week expected the consumer price index (CPI) to quicken to 6.2% y/y while slowing to 0.4% m/m in April.

Razia Khan, head of Research at Standard Chartered, said: "Given the market expectation that we would see a pronounced impact of higher fuel prices and the new fuel levies on inflation in April, the CPI print for the month... is actually pretty good news.

"The m/m rise of only 0.4% is reasonably benign, and core inflation, at only 5% y/y, is well behaved.

"The risks to our view of a late 2012 tightening by the South African Reserve Bank (Sarb) are certainly rising.

"On the one hand, there is a story of some recovery in the domestic economy, private sector credit growth rates becoming healthier, and unsecured lending rising very strongly.

"On its own, this would create a case for some eventual normalisation of interest rates, or else the Sarb might risk stoking imbalances and storing up problems for the future.

"But domestic growth in South Africa cannot be viewed in isolation, and for the moment external risks related to the euro area are overriding.

"Should we see a significant global shock, then it is plausible that South African interest rates will remain low, even negative in real terms, for an extended period of time.

"However, a shock of this nature is not yet a core scenario. Events over the coming weeks, the performance of the rand, and the high frequency data in South Africa will all have to be monitored very closely to get a clear sense of the interest rate trajectory."

"Well, it is a pleasant surprise, I do not think it will change market perceptions on the interest rate side, we still believe that the current global setting stance in interest rates will be delayed well into 2013, while we still believe there is no scope for further monetary easing," said Elna Moolman, economist at Renaissance Capital.

The rand was weaker at R8.4030 against the dollar at 08:15 GMT from R8.3901 before the data was released at 08:00 GMT. The yield on the 2015 bond was at 6.4% from 6.39% prior to the announcement. The yield for the 2026 paper edged up to 8.34% from 8.33%.

The Sarb targets a 3% - 6% band for headline consumer inflation. The price index returned to the band in March after having been outside it since November last year.

The bank said in March inflation pressures were becoming more broad-based, reflecting a rising trend in both core and headline inflation.

Reserve Bank governor Gill Marcus said she did not see inflation "running away" but it was an area the bank needed to watch closely.

The Sarb expects inflation to peak in the second quarter of this year at 6.5% from a previous forecast of 6.6%.

sarb  |  interest rates  |  inflation



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