Wednesday November 25, 10:16 AM
INSTANT VIEW 3-S.Africa's Oct CPI inflation at 5.9 pct y/y
JOHANNESBURG, Nov 25 (Reuters) - South Africa's targeted consumer inflation slowed in line with expectations to 5.9 percent year-on-year in October, returning to the target band for the first time in more than 2-1/2 years, official data showed on Wednesday.
Statistics South Africa said annual headline CPI (NYSE: CPY - news) slowed from 6.1 percent in September while it was unchanged on a monthly basis compared with 0.4 percent the previous month.
A Reuters poll last week forecast CPI would slow to 5.9 percent year-on-year and come in at 0.1 percent on a monthly basis.
ANALYST COMMENTS
RAZIA KHAN, HEAD OF AFRICA RESEARCH, STANDARD CHARTERED (LSE: STAN.L - news)
'Consensus spot on. CPI at 5.9 percent year-on-year. Within target again.
'Of course, the key consideration going forward is how long inflation stays within the targeted range. The base effect will help over the coming months -- year-on-year inflation will be lower.
'The summer months in South Africa before Christmas typically see low month-on-month rises. But the key test comes in the new year, with busy survey months, and new year repricing of everything.
'We also think the World Cup will be a major factor in influencing price setting in South Africa. Sadly, every major international event has been followed by opportunistic price setting as South Africa tries to realign itself with the rest of the world. Am guessing hotel rooms are not a major part of the index, but it is the secondary impact that we are wary of.
'Yes, the achievement of the inflation target makes nice headline news, but it is unlikely to be a major factor in influencing rates with the level of uncertainty ahead.'
CHRISTIE VILJOEN, ECONOMIST, NKC INDEPENDENT ECONOMISTS
'Obviously it's good news to be back in the target band which is something that the Reserve Bank would have aimed for with its higher lending rates in the past few year.
'It creates some optimism in terms of consumer spending. But we should be a bit weary that the annualised rate could climb towards year-end again due to base effects.
'So, this is definitely not a break below 6 percent. For certain we should expect to see some high numbers in the coming months.
'I think the GDP growth number yesterday would be a bit more important than the inflation number today.
'Because we moved out of the recession it sort of implies that the chance for an interest rate cut is even lower and because of the risk that inflation will climb higher next year because of the Eskom situation.'
ELNA MOOLMAN, ECONOMIST, BARNARD JACOBS MELLET
'It was, of course, exactly in line with our forecast and we expect it to remain below 6 percent for November (Frankfurt: A0Z24E - news) as well.
'Unfortunately that will be followed by a couple of months that CPI is likely to spend outside the target range, but we expect it to be within the target range from around the second quarter of 2010.
'The sustainability of 5-6 percent inflation in our minds to a large extent depends on the magnitude of the electricity tariff increases as well as the trajectory for the rand and commodity prices.'
FREDDIE MITCHELL, ECONOMIST, EFFICIENT GROUP
'At 5.9 percent, we are within the target range of the Reserve Bank and that's pretty good news.
'What remains of concern is the proposed 45 percent electricity tariff increase by Eskom. We will see how long inflation will be maintained within the band.
'Consumer demand is depressed at the moment and there might be problems with inflation if consumer demand rises next year.'
MARKET REACTION
The rand was trading at 7.3970 against the dollar at 0956 GMT, from 7.3990 before the data was released at 0930 GMT. The yield on the 2015 government bond was at 8.38 percent, from 8.385 percent.
BACKGROUND
- CPI has been slowing gradually since peaking at nearly 14 percent year-on-year in August 2008. It was above the central bank's target band of between 3 and 6 percent from March 2007.
- The central bank last week left the repo rate unchanged at 7.0 percent for the third meeting in a row, citing an improved economic outlook and worries high power prices will stoke long-term inflation.
- Statistics South Africa data showed on Tuesday the economy exited its first recession in almost two decades with a 0.9 percent growth in the third quarter on a seasonally adjusted and annualised basis.
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