POLL-S Africa June confidence up but inflation a worry

JOHANNESBURG, July 5 (Reuters) South African economic confidence ticked up slightly in June after retreating to a half-year low previously, with growth forecasts firmer and the rand also seen stronger, but inflation pressures should persist.

A survey of 11 economists released today showed the Reuters econometer, a confidence measure of six weighted indicators, recovered to 254.44 in June after dropping to a six-month low of 253.25 in May.

Respondents also adjusted their growth forecasts slightly higher from the previous month, with gross domestic product (GDP) expansion seen averaging 4.82 per cent in 2007 compared with the 4.80 per cent seen in May.

Growth in Africa's economic powerhouse was expected to quicken further to 5.4 per cent in 2009, another upgrade from May's forecast of 5.27 per cent.

''We think there's enough going on in this economy to keep us going and especially from next year we see quite a good acceleration,'' said Nicky Weimar, economist at Nedbank, adding however that inflation should remain on the high side.

Figures from Statistics South Africa showed that South Africa's targeted CPIX inflation rate stayed above the central bank's 3 to 6 per cent band at 6.4 per cent year-on-year in May -- the second month in a row -- driven by higher food and international oil prices.

The Reuters poll showed that economists expected CPIX to average 5.93 per cent in 2007, 5.52 per cent a year later and 5.22 per cent in 2009, up from the 5.83 per cent, 5.35 per cent and 5.0 per cent respectively, forecast in May.

''The latest CPIX and PPI (producer price index) numbers show that there are still a lot of inflationary pressures in the economy,'' said Ridle Marcus, senior economist at ABSA.

''I think inflation will in the third and fourth quarter taper off significantly ... but by December and January, CPIX numbers will be above six percent again,'' Marcus said.

The central bank increased its repo rate by 50 basis points to 9.5 per cent last month, adding on to two percentage points worth of increases it effected in the second half of 2006 in a bid to stem inflationary, credit-driven consumer demand.

SPENDING SLOWS DOWN Some analysts believe household spending could be starting to slow down in response to the higher interest rates -- as partly borne out by a 12.1 per cent decline in new vehicle sales in the year to June, according to data this week.

But it might be too early to rule out another increase in the repo rate when the Reserve Bank holds its fourth monetary policy committee meeting of the year in August.

The mean forecast for the repo rate in the survey was higher at 9.83 per cent at end-2007, compared with 9.6 per cent in the previous poll.

Predictions for the rand remained buoyant, with the domestic currency -- which was at 6.98 versus the dollar early today -- seen closing 2007 at 7.28, a touch firmer than May's forecast of 7.32/dollar.

This would be a loss of just 4.12 per cent over the year, compared with the nearly 10 per cent the rand gave up in 2006, largely weighed down by risk concerns linked to a gaping current account deficit.

''At the moment the rand is moving very favourably for inflation.

Being below 7.00 it reduces the import component of inflation significantly,'' said ABSA's Marcus.

REUTERS AGL PM1541