May 22, 2019 / 9:06 AM / a month ago

UPDATE 1-Slack consumer spend sees South African inflation slow in April

(Adds details, analyst comment)

JOHANNESBURG, May 22 (Reuters) - South Africa’s inflation slowed in April as weak spending by consumers faced with high unemployment, falling incomes and political uncertainty dampened demand in an economy struggling to shake-off years of policy missteps.

President Cyril Ramaphosa’s pledge to revive economic growth, which has hovered around 1 percent in recent years, saw his African National Congress (ANC) clinch another victory in general elections this month, but signs of slack activity have dampened some of the enthusiasm.

Headline consumer inflation slowed to 4.4% year on year in April from 4.5% in March, while prices grew 0.6% on a monthly basis, data from Statistics South Africa showed on Wednesday.

Manufacturing, mining and retail indicators suggest the economy contracted in the first quarter of 2019 following nationwide electricity outages as state-firm Eskom battled with failures at power stations and a sharpening cash-crunch.

Unemployment also ticked-up in the first quarter while business and consumer confidence remain subdued, indicating that spending, which accounts for 60% of gross domestic product, will struggle to add to growth.

“There isn’t a lot of demand in the economy and it’s really starting to show. Look at the services component, miscellaneous goods, and the owner’s equivalent rent section. You see them coming down and that’s consistent with a weak economy,’ said FNB chief economist Mamello Matikinca.

First National Bank (FNB) sees GDP growth at 0.9 percent in 2019, much lower than Treasury forecast of 1.5 percent.

And while the headline inflation has remained below the upper end of the South African Reserve Bank (SARB) target range of 3–6% for two years, the bank is unlikely to cut rates when it announces it policy decision on Thursday.

The rand turned slightly firmer after the data, trading at 14.3600 per dollar at 0840 GMT, having started the morning at 14.4125. (Reporting by Mfuneko Toyana; Editing by Toby Chopra)

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