Picture: David Ritchie

CAPE TOWN - SA's consumer price inflation slowed by more than expected to its lowest in seven years on Tuesday as the end of the worst drought in decades helped push down food prices.

The rand briefly rallied to a session high but quickly gave up those gains with investors doubtful the surprisingly low inflation print would be enough to persuade the South African Reserve Bank (SARB) to further cut interest rates.

Bonds firmed, with yield on the benchmark 2026 paper dropping 2.5 basis points to 8.045 percent.

“Needless to say, this is good news for South African bonds,” said chief Africa economist at Standard Charted Razia Khan, adding that she expected inflation to stay well within the SARB’s 3-6 percent target band in the medium term.

“It does not however change our view that we are unlikely to see further SARB easing in this cycle.”

The SARB cut its main interest rate to 6.5 percent in March but warned that inflation was at low point of the current cycle, and that it expected consumer prices to rise above 5 percent in the medium term.

A one percent increase in Value Added Tax came into effect on April 1 and will put upward pressure on prices.

Headline consumer inflation slowed to 3.8 percent year-on-year in March from 4.0 percent in February, the lowest figure since January 2011, Statistics South Africa said, while month-on-month inflation slowed to 0.4 percent from 0.8 percent.

Economists polled by Reuters had expected prices to quicken to 4.1 percent on a year-on-year basis and by 0.6 percent on a monthly basis.

Food price inflation, a major concern for the Reserve Bank in the last two years due to drought, slowed to 3.5 percent year-on-year having hit 11.8 percent in December 2016. 

-REUTERS