South Africa Producer-Price Inflation Accelerates

The cost of goods leaving South African factories rose at a faster pace in March than the previous month as a weaker rand boosted import prices.

Producer-price inflation for final manufactured goods accelerated to 5.7 percent from 5.4 percent in February, Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 10 economists was 5.5 percent. Prices rose 0.9 percent in the month.

“Lingering price effects from previous rand weakness and elevated global commodity prices will be key drivers” of producer inflation, Kamilla Kaplan, an economist at Investec Ltd. in Johannesburg, said in an e-mailed note to clients before the release of the data. “These effects should wear off in the next few months on the recent softening in global commodity prices and the absence of further rand weakness.”

The rand has gained 0.6 percent against the dollar this month, paring its decline for the year to 7.6 percent, while the price of oil has slumped 8.1 percent since April 1. The Reserve Bank last month held the benchmark repurchase rate at 5 percent, the lowest level in more than 30 years, as the weaker rand threatened to stoke inflation.

A weaker currency and higher fuel prices pose the main risk to the inflation outlook, Reserve Bank Governor Gill Marcus said in an April 19 speech in Johannesburg. The bank is forecasting that consumer-price inflation will temporarily breach the target of 3 percent to 6 percent later this year. The inflation rate was unchanged at 5.9 percent in March.

Interest rates are likely to remain unchanged with the risk tilted towards another cut,” Kaplan said.

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