Dip in S.A's consumer inflation makes rate hike unlikely

PUBLISHED: Wed, 21 Sep 2016 11:23:02 GMT

South Africa’s headline consumer inflation dipped below the top end of the central bank’s target in August to its lowest in nine months, data showed on Wednesday, suggesting interest rates would remain unchanged at this week’s monetary policy meeting.

Inflation has been trending lower since peaking at 7 percent in February, partly helped by a stronger rand which is up about 12 percent against the dollar so far this year after losing a quarter of its value in 2015.

Consumer inflation slowed to 5.9 percent year-on-year in August from 6 percent in July, data from Statistics South Africa showed.

Economists polled by Reuters correctly predicted CPI would come in 5.9 percent, within the South African Reserve Bank’s (SARB) 3 percent to 6 percent target band.

“This is good news from an interest rate perspective,” KPMG senior economist Christie Viljoen said.

“While the SARB will certainly not lower interest rates this year, a moderation in inflation forecasts could result in a longer pause in its monetary policy tightening cycle.

The rand held firm against the dollar after the CPI data, helped by strong appetite for high yielding emerging market assets as investors expect the Federal Reserve to keep U.S. interest rates low for longer this year.

South Africa’s central bank has hiked the benchmark repo rate by a cumulative 200 basis points since the start of 2014, but left it unchanged at 7 percent at its May and July policy meetings.

Economists polled by Reuters expect another hold when the bank concludes its latest meeting on Thursday.

Stats S.A. data on Wednesday also showed consumer prices were down 0.1 percent on a month-on-month basis in August, after a 0.8 percent increase previously.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, was unchanged at 5.7 percent year-on-year, but slowed to 0.2 percent month-on-month from 0.6 percent.

(Reporting by Mfuneko Toyana; Writing by Stella Mapenzauswa; Editing by James Macharia)

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