Consumer Inflation slows and Rand on Recovery Route

Finally some good news from our battered economy:

h3. Inflation

South Africa’s headline consumer inflation slowed to 5.8% year-on-year in November, in line with market forecasts, from 5.9% in October, data from Statistics South Africa showed today. On a month-on-month basis prices were flat in November, also as expected, after edging up 0.2% the previous month. Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, edged higher to 5.8% from 5.7% year-on-year, and was at 0.2% on a month-on-month basis, from 0.3%.

h3. Rand Exchange Rate

The rand traded firmer against the US dollar on Wednesday, pulling further away from Monday’s six-year low, although market watchers expected pressure to resume if inflation and retail sales data came in worse than expected. In early morning trade the rand traded at R11.4350 to the greenback, slightly firmer than Tuesday’s New York close at R11.4545. The yield for the heavily traded government bond due in 2026 was flat at 7.835%. The rand has reclaimed about 1.2% of its value since plunging more than 2% to R11.5750 on Monday, a level last seen in October 2008, after SA Reserve Bank (Sarb) data showed a yawning third quarter current account deficit of 6% of GDP.

Because of South Africa’s persistently high current account and budget deficits, the rand tends to take the heaviest hit among peers when investors’ appetite for high-yielding but riskier emerging markets wanes. “The rand is back on its feet but, as pressures from the US dissipate, new concerns emerge from Europe and China,” RMB currency analyst John Cairns said, referring to dim economic prospects for South Africa’s key trading partners.

On the domestic front, investors were also worried about renewed electricity shortages, which Eskom says could last for some time. The power crunch could trigger another credit downgrade from ratings agency Fitch, which, along with Standard and Poor’s, will issue its latest review on South Africa on Friday.

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