End of monetary easing strengthens the rand to a nine-month high
JOHANNESBURG - THE RAND strengthened to a nine month high yesterday, rising 0.04 percent to R15.22 to the dollar at 5pm as a bigger-than-expected increase in producer and consumer prices during October cemented the end of the recent monetary policy easing.
Producer prices in South Africa rose above market expectations to a seven-month high in October driven by the further rise in food and non-alcoholic beverage prices.
Statistics South Africa (StatsSA) said yesterday that the annual headline producer price index was 2.7 percent year-on-year in October, up from 2.5 percent in September.
This was the highest producer price inflation since March.
TreasuryONE’s Andre Botha said the weak US jobless claims number had put further pressure on the dollar, and emerging markets currencies had been the big winners.
“The number of new claims rose for the second week to 778 000 against a market estimate of 730 000 and putting a dampener on economic recovery hopes,” Botha said.
“The rand remains the best-performing emerging markets currency at the moment, with the potential now to test the R15-level.”
The dollar was on the defensive yesterday on the back of the poor jobs data and the lack of any headway in controlling the increase in virus cases in the US.
Consumer price inflation (CPI) rose to 3.3 percent as food prices and beverages saw the biggest annual rise since September 2017 when the country was emerging out of severe drought.
Food products, beverages and tobacco products increased by 5.1 percent year-on-year, while transport equipment increased by 8.5 percent in October.
Meat inflation rose sharply to 7.2 percent from 3.8 percent in September, underpinned by a decrease in the slaughtering rate of red meat, along with the recent increase in poultry import tariffs.
Grain mill product prices as well as starches, starch products and animal feed inflation also continued to edge up further on a year-on-year basis.
Fuel prices, however, have moved further into deflationary territory in October.
This dampened the effect on the headline outcome as petrol and diesel prices fell 32 cents per litre and 93c per litre respectively in October.
On a monthly basis, StatsSA said producer prices went up 0.4 percent in following a 0.3 percent increase in September, slightly above market consensus of a 0.3 percent increase.
Investec’s Lara Hodes said the forecast of good harvests would be beneficial for producer and consumer prices.
“While the lift in manufactured food price inflation has started to feed through into consumer price inflation, as reflected in October’s CPI reading, prospects for the 2020/21 production season are buoyant, with La Niña rains likely,” Hodes said.