S.African CPI slows further, room for rate cut

JOHANNESBURG (Reuters) - South Africa's consumer inflation slowed more than expected in June, official data showed on Wednesday, leaving the door open for another rate cut before year-end.

Statistics South Africa said on Wednesday consumer inflation slowed to 4.2 percent year-on-year in June from 4.6 percent in May, beating forecasts of 4.5 percent. Inflation slowed for the sixth consecutive month.

The CPI was unchanged on a monthly basis after rising 0.2 percent in May, which was also lower than expectations of 0.3 percent.

Food costs, a previous driver of inflation, were still showing a downward trend.

"(Food has) been the single biggest factor in keeping inflation well under control," said Kevin Lings, chief economist at Stanlib.

The South African Reserve Bank expects inflation to remain within its target band of between 3 and 6 percent until end-2012.

The SARB left the repo rate unchanged at 6.5 percent last week and warned about the impact of high wage demands on inflation after reducing rates by 550 basis points between December 2008 and March 2010.

The central bank said although the local economic recovery was continuing, signs pointed to a less favourable growth outlook in the second quarter, after the economy exited its first recession since 1992 in Q3 2009..

"(The CPI print) certainly does look like a good number ...in that regard it would actually improve the possibility of a rate cut depending on the reasoning behind it," said Dennis Dykes, chief economist at Nedbank.

The rand was trading at 7.36 against the dollar at 0956 GMT, from 7.3650 before the data was released at 0930 GMT. The yield on the 2015 government bond dipped to 7.635 percent from 7.69 percent.