Bloomberg News

South African Inflation, Retail Data Add to Unchanged Rate Call

September 21, 2011

Sept. 21 (Bloomberg) -- South African consumer prices rose less than economists forecast last month, while retail sales gained in July, adding to expectations the central bank will keep its benchmark rate at a 30-year low tomorrow.

Inflation was unchanged at 5.3 percent, compared with a median estimate of 5.5 percent in a Bloomberg survey of 20 economists. Retail sales growth accelerated to 2.8 percent from a revised 2.4 percent in June, the Pretoria-based Statistics South Africa said today.

“There’s little risk of a sustained break of the inflation target” band of 3 percent to 6 percent, Jean-Francois Mercier, an economist at Citigroup Inc. in Johannesburg, said in a telephone interview. “The Reserve Bank will probably feel that the economic situation has deteriorated over the last two months.”

A weakening economic recovery may outweigh concerns of rising price pressures, prompting the Monetary Policy Committee, led by Governor Gill Marcus, to keep its benchmark lending rate at 5.5 percent tomorrow, according to 18 of the 19 economists surveyed by Bloomberg.

Growth in Africa’s biggest economy slowed to a two-year low of 1.3 percent in the second quarter as manufacturing and mining output plunged, the statistics office said on Aug. 30. Budget cuts by European governments to ease a debt crisis is reducing demand from a region that consumes about a third of South Africa’s manufactured goods.

‘Loss of Momentum’

“There is a loss of momentum in economic activity,” Mercier said. “I wouldn’t be surprised if the central bank reduces its economic growth outlook” of 3.7 percent expansion for this year.

Inflation was unchanged after food prices increased 0.3 percent in August from the previous month, less than forecast, Elize Kruger, an economist at KADD Capital in Johannesburg, said in a telephone interview today.

Marcus, who will announce the rate decision after 3 p.m. in Pretoria tomorrow, said on July 21 inflation will probably average 5.1 percent this year and 6 percent in 2012.

Retail sales increased for a second consecutive month in July as interest rates at a 30-year low helped to support consumer spending. The median estimate of 16 economists surveyed by Bloomberg was for sales to expand 2 percent.

“Looking forward, South African consumer activity is likely to face increasing strain,” Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said in an e-mailed note to clients. Rising energy, food and education costs are “eroding the household sectors’ spending power.”

The rand weakened as much as 3.2 percent to 7.9648 against the dollar today and was trading at 7.9251 as of 2:49 p.m. in Johannesburg. The currency has plunged 16 percent this year, the worst performer of the 16 major currencies tracked by Bloomberg.

--With assistance from Simbarashe Gumbo in Johannesburg. Editors: Nasreen Seria, Karl Maier

To contact the reporters on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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