Rate cuts may come sooner

Johannesburg - South Africa's producer price inflation slowed in September, official data showed on Thursday, pointing to easing pipeline pressures that help the case for lower interest rates.

Statistics South Africa said PPI, representing domestic output, braked to 16.0% year-on-year in September, from 19.1% in August. On a monthly basis, PPI was at -3.5%.

Economists polled by Reuters forecast annual PPI would be steady at 19.1% and at -1.7% month-on-month.

The lower-than-expected PPI number comes a day after data showed the targeted CPIX consumer inflation was at 13.0% in the year to September, slowing for the first time in a year.

The South African Reserve Bank (SARB) has raised the key repo rate by 500 basis points to 12.0% since June 2006 in an effort to curb inflation. It left rates steady in August and this month, partly due to a better inflation outlook for 2009.

Analysts said the inflation data, coupled with slower demand for credit, could see the central bank cut rates sooner than previously expected. Most economists have predicted cuts will start in the second quarter of next year.

"This makes a full set of SARB-friendly data released this week, all pointing to the possibility of the rate easing cycle commencing sooner rather than later," said Razia Khan, regional head of research for Africa at Standard Chartered.

"The surprising deceleration in PPI ... pretty much seals the case for the next move in interest rates being down."

- Reuters