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Johannesburg - Economists expressed relief on Wednesday after data showed South Africa's headline consumer inflation undershot market expectations in June, slowing to 5.5% year-on-year from 5.6% in May.
Statistics South Africa said on Wednesday on a month-on-month basis June CPI stood at 0.3% compared with -0.3%.
Economists had expected inflation to quicken to 5.7% year-on-year and to 0.5% month-on-month.
Peter Worthington, analyst at Absa Capital said "it is a very good relief that the South African Reserve Bank should feel very happy with. Obviously the headline number is below consensus expectations.
"And further more the core number which is CPI less food, energy and petrol; that has also decelerated, which suggests that there is very little path through from the rand depreciation so far."
Worthington however said that one inflation relief isn't going to make or break an interest rate decision, "but if we look at the string of inflation numbers that we have had recently - they have been quite subdued relatively and it reduces the chance of a rate hike".
"We have always said we don't think the central bank is going to move rates; that they are going to stay on hold. But after the rand started to depreciate, there was a risk that they would be forced to hike rates if there was a big inflationary impact.
"So far we are not seeing any inflationary impact so that risk that they will be forced to hike rates seems to be a bit less," Worthington said.
Adenaan Hardien, economist at Cadiz Asset Management, welcomed the "good outcome even in a relatively low survey month and notwithstanding the fact that this was partly due to the fact that motor vehicle insurance will only be captured in July".
"The focus is still on the July outcome, given that it is the highest survey month with the inclusion of some crucial price categories like electricity tariffs. But even with that, it is still a relatively good outcome."
Kadd Capital economist Elize Kruger said the data will result in a slight downward revision to CPI forecasts, "but overall it's not really changing the broader theme in the sense that although it's a good print today we're probably going to see a figure above 6% next month given the petrol price increase and given electricity prices coming through in July".
"So it's good news on the day but it's a temporary good news. We will probably breach the 6% level in the next month or two."
Peter Attard Montalto, emerging market economist at Nomura, said CPI surprised strongly to the downside. Core also fell back.
"The drop was led by household items like furnishings and service prices showing that there is still minimal wage push inflation occurring from the retail sector. Insurance costs which have a huge 9.9% weight also surprised to downside.
"This number will probably still be seen as a one-off by the Sarb which will still see the same risks around the outlook but this will reinforce the fact there can be no change in rates this year.
"The data today does not change our medium run view of inflation outside target next year on structural issues and so hikes next year."
Razia Khan, head of research Africa, Standard Chartered said the print is key in setting market expectations of the anticipated breach of the inflation target in Q3 2013. "With seemingly little evidence of pass through from a weaker rand into inflation (a lag may nonetheless be at work), many will question the severity of the expected breach of the inflation target.
"Durable goods inflation was negative month-on-month, but services inflation rose more strongly. The sources of pressure may not necessarily be what we think.
"Add to that the fact that the rand has retraced significantly since June, and we could well see a different assessment of inflation risks from the Sarb when it meets again in September."
The rand weakened to R9.7055/$ at 10:40 from R9.6775 before the data was released at 10:00. At 12:07 the rand was trading at R9.70 against the greenback.
The yield on the benchmark 2026 bond initially fell to 7.935% but came to 7.97%, where it was before the data.
Statistics South Africa has changed the weightings in its consumer price index basket to give a greater weight to petrol and electricity prices.
Growth in the services sector component of the CPI basket has increased, making it harder for the South African Reserve Bank to pinpoint the source of price pressures.
The Reserve Bank expects consumer inflation to temporarily breach the upper end of its 3% to 6% target band in the third quarter at a 6.3% average, higher than previous forecasts.
The exchange rate, high petrol prices and wage pressures pose upside risks to CPI, the bank has said.
Statistics South Africa said on Wednesday on a month-on-month basis June CPI stood at 0.3% compared with -0.3%.
Economists had expected inflation to quicken to 5.7% year-on-year and to 0.5% month-on-month.
Peter Worthington, analyst at Absa Capital said "it is a very good relief that the South African Reserve Bank should feel very happy with. Obviously the headline number is below consensus expectations.
"And further more the core number which is CPI less food, energy and petrol; that has also decelerated, which suggests that there is very little path through from the rand depreciation so far."
Worthington however said that one inflation relief isn't going to make or break an interest rate decision, "but if we look at the string of inflation numbers that we have had recently - they have been quite subdued relatively and it reduces the chance of a rate hike".
"We have always said we don't think the central bank is going to move rates; that they are going to stay on hold. But after the rand started to depreciate, there was a risk that they would be forced to hike rates if there was a big inflationary impact.
"So far we are not seeing any inflationary impact so that risk that they will be forced to hike rates seems to be a bit less," Worthington said.
Adenaan Hardien, economist at Cadiz Asset Management, welcomed the "good outcome even in a relatively low survey month and notwithstanding the fact that this was partly due to the fact that motor vehicle insurance will only be captured in July".
"The focus is still on the July outcome, given that it is the highest survey month with the inclusion of some crucial price categories like electricity tariffs. But even with that, it is still a relatively good outcome."
Kadd Capital economist Elize Kruger said the data will result in a slight downward revision to CPI forecasts, "but overall it's not really changing the broader theme in the sense that although it's a good print today we're probably going to see a figure above 6% next month given the petrol price increase and given electricity prices coming through in July".
"So it's good news on the day but it's a temporary good news. We will probably breach the 6% level in the next month or two."
Peter Attard Montalto, emerging market economist at Nomura, said CPI surprised strongly to the downside. Core also fell back.
"The drop was led by household items like furnishings and service prices showing that there is still minimal wage push inflation occurring from the retail sector. Insurance costs which have a huge 9.9% weight also surprised to downside.
"This number will probably still be seen as a one-off by the Sarb which will still see the same risks around the outlook but this will reinforce the fact there can be no change in rates this year.
"The data today does not change our medium run view of inflation outside target next year on structural issues and so hikes next year."
Razia Khan, head of research Africa, Standard Chartered said the print is key in setting market expectations of the anticipated breach of the inflation target in Q3 2013. "With seemingly little evidence of pass through from a weaker rand into inflation (a lag may nonetheless be at work), many will question the severity of the expected breach of the inflation target.
"Durable goods inflation was negative month-on-month, but services inflation rose more strongly. The sources of pressure may not necessarily be what we think.
"Add to that the fact that the rand has retraced significantly since June, and we could well see a different assessment of inflation risks from the Sarb when it meets again in September."
The rand weakened to R9.7055/$ at 10:40 from R9.6775 before the data was released at 10:00. At 12:07 the rand was trading at R9.70 against the greenback.
The yield on the benchmark 2026 bond initially fell to 7.935% but came to 7.97%, where it was before the data.
Statistics South Africa has changed the weightings in its consumer price index basket to give a greater weight to petrol and electricity prices.
Growth in the services sector component of the CPI basket has increased, making it harder for the South African Reserve Bank to pinpoint the source of price pressures.
The Reserve Bank expects consumer inflation to temporarily breach the upper end of its 3% to 6% target band in the third quarter at a 6.3% average, higher than previous forecasts.
The exchange rate, high petrol prices and wage pressures pose upside risks to CPI, the bank has said.
