LOW INFLATION IS 'PLEASANT NEWS'

ECONOMISTS were yesterday "pleasantly" surprised by the slowing of South Africa's official targeted consumer inflation to 4,8percent year-on-year in April from 5,1percent in March.

ECONOMISTS were yesterday "pleasantly" surprised by the slowing of South Africa's official targeted consumer inflation to 4,8percent year-on-year in April from 5,1percent in March.

Stats SA said yesterday headline CPI stood at 0,2percent on a monthly basis in April compared to 0,8percent in March.

Carmen Altenkirch of Nedbank said: "A positive inflation surprise today, coming in below market expectations.

"However, the SARB's (SA Reserve Bank) most recent inflation forecast has already anticipated a further moderation in inflation, as a result (yesterday's) figures do not change our view that interest rates are expected to remain unchanged until well into 2011."

Market analyst Peter Attard Montalto agreed that the figures did not mean the chances of a rate cut have increased.

"It appears that the rand's strength is continuing to flow through to consumer prices. Equally, some of the surveys were soft, showing a lack of demand-side pressures and a slow recovery in the core of the economy," he said.

Brait economist Colen Garrow said: "The numbers are good, if it wasn't for the rand volatility everything would be pointing up towards easing interest rates. I think the best we can hope for is a sideways movement in our interest rates.

"It is good news for the bond market, good news for the currency. It should technically add some stability to our market, but things are overshadowed by the global markets."

Nedbank chief economist Dennis Dykes said the announcement was better than they had been anticipating.

"It's quite a positive number. It probably means that the lower (point in) inflation will be below 4,5percent, whereas prior to this number we probably would've been looking at something a little bit higher. So good news.

"Implications for interest rates? We don't think we'll change our view, but if we have weak economic numbers over the next few months we think there's a downside potential."

Jeffrey Schultz of Absa Capital said due to the relatively depressed conditions in the economy, food prices in particular will continue to moderate significantly.

"As far as our inflation outlook is concerned, while near term inflation dynamics continue to look favourable, in the medium term inflation dynamics look a little bit more tricky, given the administered price outlook in particular for electricity, and for utility prices in general.

"Today's number does not change our outlook in terms of interest rates. We believe we have reached the trough in the rates cycle and are likely to remain at these levels for some time, probably well into next year," he said.

Razia Khan of Standard Chartered said: "This is for real. Inflation is actually trending down meaningfully.

"This leaves the door open to further interest rate easing if the SARB should see it necessary." - Reuters and I-Net Bridge

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