South African Inflation Unnexpectedly Slows in February

South Africa’s inflation rate unexpectedly fell for the first time in a year in February as food prices dropped and a stronger rand helped curb import costs in Africa’s biggest economy.

Inflation slowed to 6.1 percent from 6.3 percent in January, Pretoria-based Statistics South Africa said on its website today. The median estimate of 14 economists surveyed by Bloomberg was 6.4 percent. Prices rose 0.6 percent from a month earlier while food and non-alcoholic beverage costs declined 0.5 percent.

“Food prices are moderating contrary to what the consensus had expected,” Carmen Nel, a Cape Town-based economist at Rand Merchant Bank, said in a phone interview. “On the whole I think it will be neutral for the Reserve Bank’s monetary policy committee.”

Inflation (SACPIYOY) closer to the top end of the 3 percent to 6 percent target range may ease pressure on the central bank to raise interest rates amid concern a recession in Europe could reduce demand for exports. The bank has kept benchmark lending rate at 5.5 percent, the lowest level in more than three decades, since November 2010.

South African Reserve Bank Governor Gill Marcus on March 16 said recent data signaled inflation was becoming “more generalized.”

The rand gained for a third month in February as near-zero interest rates in Europe and the U.S. bolstered demand for higher-yielding emerging-market assets. The currency has gained 5.6 percent against the dollar this year, helping to offset a 7.8 percent jump in oil prices.

Hold for Longer

It weakened after the data was released, falling 0.5 percent to 7.6925 to the dollar at 10:50 a.m. in Johannesburg. The yield on the R157 government bond, due in 2015, fell 3 basis points to 6.90 percent.

“Immediate market reaction is likely to be that this allows the SARB to keep interest rates on hold a while longer, despite the more hawkish comments we’ve had from Governor Marcus recently,” Razia Khan, the London-based head of Africa research at Standard Chartered Plc, said in an e-mailed note to clients.

The central bank’s monetary policy committee will announce its next decision on interest rates on March 29.

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@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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