INFLATION rose more slowly than expected last month, reinforcing the view that there is scope for interest rates to stay lower for longer, figures from Statistics SA showed on Wednesday.

Consumer inflation accelerated to 6,1% year on year from 6% in March, taking it just above the Reserve Bank's official 3%-6% target range but keeping it slightly below market consensus forecasts for an increase of 6,2%.

The figures were a surprise as a sharp rise in petrol prices during the month had been expected to put more upward pressure on prices. The news will feed into the Bank's decision on interest rates on Thursday at the end of its three-day monetary policy meeting.

The Bank is expected to keep its repo rate steady at 5,5%, and the news gives it more reason to adopt a dovish tone in its announcement, which will be closely scrutinised for clues on the timing of an interest rate hike.

"It's far better than expected," said Standard Bank economist Thabi Leoka. "We expect the Bank to reduce its forecast that inflation will peak at 6,5% in the second quarter of this year."

The Bank's monetary policy committee is likely to give more weight to the threats that Europe's crisis poses to the South African economy than to inflation pressures in its statement on Thursday.

Inflation is expected to subside to within the target range before the end of this year, and local money markets are betting that interest rates will rise late next year.

During the month itself, inflation rose 0,4%, slowing from a 1,1% increase in March, Stats SA said. That was also a touch below consensus forecasts for a 0,5% rise.

The main drivers of the year-on-year increase in inflation were food prices and higher costs of housing and utilities.

During the month itself, the sharp rise in fuel prices was the main factor.

isam@bdfm.co.za