Staff reporter and agencies

Staff reporter and agencies

Consumers' hopes of an emergency rate cut have been dashed following higher-than-expected January inflation figures from Statistics South Africa (Stats SA) yesterday.

The country's consumer price inflation slowed to 8,1percent year on year last month, which economists said did not justify an emergency rate cut.

The data came a day after figures showed the economy shrank by 1,8percent in the fourth quarter of last year, the first contraction since 1998 - leading experts to say South Africa would be proven to already be in a recession, the first in 17 years, when Stats SA revised gross domestic product (GDP) figures for the third quarter of last year, which grew by a marginal 0,2percent.

T-Sec economist Mike Schussler said on Tuesday that a recession was commonly agreed on as negative growth for two quarters.

The GDP decline reinforced speculation that the Reserve Bank would call an emergency policy meeting ahead of its April gathering to cut rates again after moves in December and earlier this month.

But, Investment Solutions economist Chris Hart said: "The CPI figure very unfortunately does tie the hand of the Reserve Bank."

Stats SA said yesterday CPI inflation slowed from 9.5percent year on year in December, while month on month inflation stood at 0,4percent in January - the first month under a revised price basket.

The number was higher than the market consensus of a 7,5percent rise, with food prices, and in particular vegetables and fresh meat, capping downward pressure from falling fuel costs.

But, as expected, inflation was still sharply slower than in December, backing the case for more, aggressive, rate cuts to try to boost output.

But all hope of a rate cut before the scheduled Reserve Bank Monetary Policy Committee meeting in April has not been lost, even if the cut does not happen this week as had been initially speculated.

Jeff Gable, head of research at Absa Capital, said monetary policy would be dictated far more by concern over the real economy and economic growth than it is by inflation.

"Inflation is significantly lower than it was six months ago. Inflation is likely to fall further ... economic growth is falling very rapidly and all the signs from the global economy are that the downside risks to growth are significant."