S.A's inflation back in target, at 3-yr low

| Thursday March 25, 2010 00:00

The easing to 5.7 percent year-on-year, a more than three-year low, from January's 6.2 percent suggests price pressures are cooling although month-on-month inflation quickened. Statistics South Africa said headline CPI stood at 0.6 percent on a monthly basis in February versus January's 0.3 percent. The retreat into the band comes a month ahead of the Reserve Bank's forecast and further easing could add to chances of a rate cut but some investors had looked for a faster dip than Wednesday's numbers showed. 'I don't think at this point in time (there will be) a rate cut just yet but should inflation continue surprising to the downside in the months ahead, another rate cut is still possible,' George Glynos, managing director of market analysts ETM, said.

Analysts said inflation may surprise on the downside over the next few months, making more policy loosening possible later this year, should the central bank decide to hold the repo rate at 7 percent at its two-day policy meeting ending today.

Food inflation led the slowdown, declining 0.4 percent month-on-month and easing to 1.8 percent compared with the same month last year.

'I think pretty much in-line with what had been anticipated, the market had been looking at about 5.7 (percent), so pretty much in-line with the consensus,' Nedbank chief economist Dennis Dykes said.

'I think what we will see over the next couple of months is that it will come down even further, threatening the 5 percent level.'

Most economists see the central bank keeping rates flat and data on Tuesday showed consumer demand, which has lagged growth in production in recovering from last year's recession, is starting to pick up.

Fuel prices could increase about 6 percent next month, while power prices are due to climb 25 percent later this year.

A Reuters poll last week forecast CPI would come back into the central bank's 3-6 percent target band at 5.7 percent year-on-year in February and quicken to 0.5 percent on a monthly basis. (Reuters)