Inflation outlook is improving

Tito Mboweni/RESERVE BANK GOVERNOR
Tito Mboweni/RESERVE BANK GOVERNOR

South Africa's factory-gate inflation was steady at 10percent year-on-year in November, unchanged from October's level which, said analysts, suggested the inflation outlook was improving.

South Africa's factory-gate inflation was steady at 10percent year-on-year in November, unchanged from October's level which, said analysts, suggested the inflation outlook was improving.

The November figure was below the 10,2 percent forecast by 11 economists in a Reuters poll and followed November consumer inflation of 5 percent, less than the expected 5,2 percent.

Analysts said the better-than- expected numbers suggested the inflation outlook was improving, but cautioned against assuming the tightening cycle of the interest rate was over.

"It is still too early to say we see the end of hikes. We could still be looking at a rate hike in February," said Monica Ambrosi, an economist at ETM.

"We're certainly not out of the woods yet, but two pleasant surprises on the inflation front this week certainly bodes well for the inflation and interest rate outlook," said Elna Moolman, Standard Bank senior economist.

Economists expected the Reserve Bank's Monetary Policy Committee (MPC) to remain cautious when it next meets in February.

"Despite a relatively benign inflation setting, the Reserve Bank is expected to remain cautious about consumers' spending and borrowing frenzy and hence another interest rate hike is on the cards for the MPC meeting in February," Moolman said.

The Reserve Bank, under governor Tito Mboweni, has increased interest rates by 200 basis points since June to curb high consumer inflation.

Analysts said the producer inflation numbers were not in themselves sufficient to influence the course of the bank's interest- rate outlook, but could mark the beginning of a change.

"If this trend continues that could be the end of the tightening cycle," Ambrosi said.

The rand was virtually unchanged at 6,9625 to the US dollar versus 6,9670 before the data was released.

Statistics SA said domestic producer inflation jumped by 9,7percent year-on-year in November, while the imported component rose by 11,3 percent.

Producer prices - which lead consumer inflation by a few months - have risen sharply this year, pressured by the rising cost of food and the weaker rand currency, which has slid about 11 percent against the dollar this year.

Economists said the inflation numbers were softened by petrol and oil price moderation in November, and this was expected to also be the trend this month. - Reuters

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