South Africa's producer inflation, which represents domestic output, slowed to 7.2 percent year-on-year in March from 8.3 percent in February, Statistics South Africa said on Thursday.
On a month-on-month basis, prices fell by 0.1 percent in March from a 0.9 percent increase previously.
Economists polled by Reuters expected PPI to slow to 7.95 percent year-on-year and 0.6 percent on a monthly basis.
ANALYST COMMENTS
NICKY WEIMAR, SENIOR ECONOMIST, NEDBANK
“I think it's a good number though off a high base and moderated more than the market expected. Food was a big driver there and we know global commodity prices certainly softened over the month.
“You will probably see this come through again in April because we saw a slide in oil prices. The fact that you are seeing some reversal in commodity prices is encouraging but it needs to be sustained and if it is sustained then the outlook for inflation may be more pleasant than everyone is expecting.
“If that is the case we don't think that will translate into a situation where you will have an unexpected cut in interest rates but what you wild probably have is rates remaining flat for longer. We still expect rates to stay flat until November and then start to rise ...”
MARKET REACTION
The rand was trading at 7.7565 against the dollar at 11:42 SA time from 7.7550 before the data was released at 11:30 SA time.
The yield on the 2015 bond dipped to 6.47 percent from 6.485 percent prior to the data release. The 2026 yield also fell to 8.185 percent from 8.2 percent.
BACKGROUND
- Consumer inflation slowed to 6.0 percent year-on-year in March, easing back into the Reserve bank's 3-6 percent band which it breached in November.
- Statistics South Africa plans sweeping changes to PPI that will make it a more relevant indicator for consumer prices from 2013. For now, the index is dominated by commodities and tends to move in tandem with those prices.
- The central bank has left its repo rate unchanged at 5.5 percent for the past 16 months after reducing it by 650 basis points in the two years to end-2010. - Reuters