Johannesburg - South Africa's headline inflation edged back above the upper end of the central bank's target in September while retail sales growth slumped to a two year low, dimming hopes of an interest rate cut in November.
Headline consumer inflation quickened to 6.1 percent year-on-year in September from 5.9 percent in August, data from Statistics South Africa showed on Wednesday, prompting analysts to predict the Reserve Bank (SARB) was unlikely to lower rates to ease pressure on consumers.
“While the inflation print is better than we expected, we doubt it will make much difference to the SARB,” Africa analyst at Standard Charted Bank Razia Khan said, adding that base-related pressures on the headline number looked set to continue.
The central bank has raised benchmark rates by 200 basis points since early 2014, and has said that despite the poor growth outlook, only vast improvements in growth and inflation would convince it to begin cutting rates.
The rand lost its early morning gains after the inflation data was released, and fell further following retail sales figures, slipping 0.38 percent to 13.9500 by 11h06 GMT.
A continued slowdown in retail sales, from a peak of 4 percent growth in February, revived fears that a second quarter expansion in domestic product could be short-lived.
Retail sales in August grew the slowest since June 2014's 0.9 percent contraction, expanding 0.2 percent year-on-year in August, with sales of household goods showing the largest decline.
“With spending no longer propping up growth, Africa's largest economy may be lucky to avoid GDP flatlining this year,” Paul Sirani, chief market Analyst at Xtrade, said.
The economy grew 3.3 percent in the second quarter after shrinking by 1.2 percent in the first quarter, although analysts warned that overall growth would remain subdued due to the volatile political situation and low commodity prices.
The central bank forecasts economic growth of 0.4 percent in 2016, while the Treasury has said it will revise its own growth forecast downwards at next week's mid-term budget, where Finance Minister Pravin Gordhan could unleash another round of spending cuts.
On Wednesday, Gordhan, who faces fraud charges in what he and opposition parties describe as a political attack, said South Africa was making progress towards avoiding rating downgrades despite the economy not growing fast enough.
Credit agencies Fitch and Standard & Poor's, which both rate South Africa one notch above non-investment grade, have pointed to low growth along with policy uncertainty and political interference as issues that could trigger downgrades.
Fitch and S&P are due to review South Africa's credit rating in December.
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REUTERS