Inflation falls to six-month low

South Africa’s inflation rate fell to a six-month low in March after food price increases slowed. By Ana Monteiro.

South Africa’s inflation rate fell to a six-month low in March after food price increases slowed.

Consumer inflation eased to 6,1% from 6,3% in February, Statistics South Africa said in a report released on Wednesday in Pretoria. The median estimate of 15 economists surveyed by Bloomberg was for 6,3%. Prices climbed 0,6% in the month.

The Monetary Policy Committee has kept the benchmark repurchase rate unchanged since last March after raising it by 200 basis points to 7% over two years to bring price growth back to within its target band of 3-6%.

Inflation has been outside the range for seven months and the central bank forecasts it will slow to less than 6% in the second quarter of the year. The scope for interest rate cuts in South Africa is limited even as the policy tightening trajectory may be over, the bank said 11 April.

Five-year breakeven rates, a measure of inflation expectations, have climbed 20 basis points to 5,85% since reaching an almost two-year low on 22 March. While the rate remains below the inflation target, the rand has erased almost all its gains for 2017 after President Jacob Zuma recalled Pravin Gordhan from an international investor roadshow in the UK and then fired him as finance minister, driving up price expectations.

The economy expanded 0,3% last year, the slowest pace since a 2009 recession, due to a slump in commodity prices, weak demand for the country’s exports and a continuation of the worst drought since records began in 1904. The nation’s corn crop is forecast to rebound in 2017, slashing prices.

The contribution to inflation by food and non-alcoholic beverages, which account for 17% of the basket of goods the agency measures, declined in March. These prices rose 8,7% from a year earlier, compared with 9,9% in February.

The rand fell 0,6% to R13,36/US$ by 10.13am in Johannesburg on Wednesday, paring its gain for 2017 to 2,9%. Yields on rand-denominated government bonds due in December 2026 pared an earlier increase, rising one basis point to 8,85%.

Core inflation, which excludes food, non-alcoholic beverages, energy and gasoline, slowed to 4,9% from 5,2% in February. The median of nine economists’ estimates was for 5,3%.  — (c) 2017 Bloomberg LP

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