Interest rate fears mount on producer inflation data

Posted On Wednesday, 27 February 2002 03:01 Published by
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South Africa's factory gate prices surged faster than expected in the year to January, reinforcing fears that the Reserve Bank may raise interest rates again this year.
South Africa's factory gate prices surged faster than expected in the year to January, reinforcing fears that the Reserve Bank may raise interest rates again this year.

Pretoria - South Africa's factory gate prices surged faster than expected in the year to January, data on Wednesday showed, reinforcing fears that the central bank may raise interest rates again during 2002.

Statistics South Africa (StatsSA) said the all-commodities producer price index rose by 11.5% after increasing by 8.3% in December, driven by sharp rises in import costs after the rand's dramatic depreciation last year.

StatsSA said this was this the biggest increase since April 1995.

'Just looking at the headline figures, it's quite horrific,' said Maciek Szymanski, an economist at SG Securities.

'The imported component has more than doubled, way outside any worst case expectations,'

'Looking at these figures now we can expect an interest rate hike sooner than expected. The next MPC meeting is in mid-March and I wouldn't rule out an announcement then.'

Bond yields surged on the data, with the yield on the key R150, due 2005, spiking 35 basis points to 11.77%, while the longer-dated R153, due 2010, jumped 39 basis points to 12.27%.

The rand shed 4c against the US dollar, trading at 11.44.

StatsSA said the month-on-month increase in the overall index, a key indicator of inflation pressures building in the economy, rose by 3.5% from 0.6% in December.

The annual growth rate of the imported component, accelerated to 13.8% from a 7.8% rise in December, while the domestic component increased 10.7% from an 8.4% gain in December.

A Reuters consensus poll of economists had forecast PPI would rise 1.0% month-on-month and 8.8% year-on-year.

The Reserve Bank surprised markets with a one percentage point hike in its repo rate to 10.50% in mid-January.

Publisher: News 24
Source: News 24

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