South African Inflation Rate Falls for Second Month
South African inflation slowed for a second consecutive month in April, increasing the likelihood of an interest rate cut tomorrow to spur an economy that contracted the most in almost 25 years last quarter.
The headline inflation rate fell to 8.4 percent from 8.5 percent in March, the Pretoria-based statistics office said on its Web site today. Inflation was expected to ease to 8.3 percent, according to the median estimate of 22 economists surveyed by Bloomberg. Prices rose 0.5 percent in the month.
South Africa’s economy, the biggest on the continent, fell into its first recession in 17 years last quarter after output fell an annualized 6.4 percent. That may prompt the Reserve Bank to cut its benchmark interest rate by 1 percentage point to 7.5 percent tomorrow, as forecast by 14 out of 26 economists surveyed by Bloomberg, even as inflation stays above the 3 percent to 6 percent target range.
“I don’t envy the Reserve Bank. They are really in a tight spot here,” said Jac Laubscher, group economist at Cape Town- based Sanlam Ltd., the biggest South African-owned life insurer no fax cash loans. “Inflation is still sticky. On the other hand you have the weak economy. They still have a little bit of room” to cut rates.
The rand was at 8.2312 against the dollar as of 12 p.m. in Johannesburg from 8.2550 before the data was released. The yield on the R157 government bond, due 2015, rose 5 basis points, or 0.05 percentage points, to 8.19 percent.
The Reserve Bank has cut its key rate four times since December, lowering it by 1 percentage point at each of its past three meetings. Governor Tito Mboweni said on April 30 that inflation will average 5.4 percent in the final quarter of 2010, without saying whether it will meet its target this year.
Rising energy costs are adding to pressure on inflation. The government increased gasoline prices by 4.4 percent on April 1, while Eskom Holdings Ltd., the state-owned power utility, has applied to the country’s energy regulator for a 34 percent increase in electricity tariffs.