SA inflation at 4-year low

| Thursday August 26, 2010 00:00

Statistics South Africa said on Wednesday CPI slowed to 3.7 percent year-on-year, its lowest since April 2006.  It braked from 4.2 percent in June and was lower than market expectations of 4.0 percent.

On a month-on-month basis, CPI quickened to 0.6 percent, from 0.0 percent in June, and also lower than the 0.9 percent expectation.

The central bank targets annual CPI increases of 3 to 6 percent, and actual data has been within this band since February.

Bond yields fell to new multi-month lows after the CPI release, as the market bet the central bank will cut the repo rate further from 6.5 percent, to add to 550 basis points worth of reductions since December 2008.

The CPI figures come a day after data showed the economy slowed more than expected in the second quarter, with analysts seeing a further slowdown in the third quarter.  'Looking ahead we expect that inflation will remain below 4 percent over the next three months, mainly due to the strength of the rand as well as weak domestic and foreign price pressures,' said Carmen Altenkirch, economist at Nedbank.

'The inflation figure today also strengthens the case for further monetary easing in September -- this along with the weak growth picture coupled with the very subdued inflation outlook as well as the strength of the rand,' she added.

The rand was last trading at 7.3520 against the dollar.  Although it has retreated from a 2-1/2 year high of 7.1740 it hit last week, strong inflows into the bond market have helped to support it. (Reuters)