June 23, 2003
By Reuters
Johannesburg - Annual producer price inflation (PPI) is expected to have eased further in May, according to a Reuters poll, adding to expectations that consumer inflation and interest rates were on a firm downward trend.
The poll of 11 economists shows that the producer price index is expected to slow to 2.5 percent year on year, which will be its lowest in five years, from 3.3 percent in April.
The figures are due for release on Wednesday.
"This will provide scope for further interest rate cuts this year," said Marisa Fassler, a JP Morgan economist.
The Reserve Bank cut its prime lending rate by 150 basis points last week to 12 percent and more cuts are expected after it was found that a calculation error had led consumer inflation to be overstated by almost 2 percentage points.
This has brought the targeted CPIX measure of consumer inflation, which strips out the effect of home loans, closer to its targeted level of 3 percent to 6 percent.
It was 7.7 percent in the year to May and was expected to fall easily within its target range in 2003, which would enable the central bank to loosen monetary policy after raising rates by 400 basis points last year in the wake of the rand's slide in 2001.
"We see cuts of another 250 basis points by the first quarter of next year," said Fassler.
Lower rates are needed to kick-start growth at a time when the rand's resilience is blamed for choking exporters. The rand's strength - it has gained about 8 percent against the dollar in the year to date after surging 40 percent last year - is the key reason for falling producer prices.
PPI in the third quarter of last year soared to over 15 percent before it began subsiding and it was expected to drop further.
"We see PPI bottoming between 0 percent and 1 percent in the third quarter of this year, mostly because of technical factors as it did go very high last year," said Matthys Strauss, the chief strategist at Absa. - Reuters
Publisher: Business Report
Source: Reuters
