/ 22 June 2011

Consumer price index for May up at 4.6%

The increase in SA’s consumer price index (CPI), which is used by the South African Reserve Bank (SARB) for its inflation target, was 4.6% year on year in May from 4.2% year on year in April, Statistics SA said on Wednesday.

CPI was 0.5% month on month from 0.3% in April.

The CPI was expected to have ticked up to 4.3% year on year, according to a survey of leading economists by I-Net Bridge. Forecasts among the eight economists ranged from 4.3% to 4.5%.

Stats SA noted the food and non-alcoholic beverages index increased by 7.1% between April and May. The annual rate increased to 6.1% in May from 4.8% in April.

The vegetables (4.3%), oils and fats (3.0%), bread and cereals (2.9%), hot beverages (2.2%), sugar, sweets and desserts (2.1%), other food (1.6%), milk, eggs and cheese (1.5%), cold beverages (1.5%), and meat (0.6%) components in the food and non-alcoholic beverages index increased.

Fruit and fish decreased by -1.4% and -0.1% respectively.

The household contents and services index increased by 0.5% between April and May, with the annual rate increasing to 1.6% in May from 0.8% in April.

The transport index, Stats SA reported, increased by 0.7% between the two months, mainly due to an increase of 29 cents a litre in the price of petrol. The annual rate increased to 3.8% in May from 3.4% in April.

The provinces with an annual inflation rate lower than or equal to headline inflation were Western Cape (4.5%), Gauteng (4.5%), North West (4.4%), and KwaZulu-Natal (4.0%).

The provinces with an annual inflation rate higher than headline inflation were Mpumalanga (4.7%), Northern Cape (4.8%), Limpopo (5.0%), Eastern Cape (5.2%) and the Free State (5.6%).

CPI registered 4.3% in 2010 from the 7.1% in 2009. Annual CPI in 2008 struck 11.5% from 7.1% in 2007.

Interest rates were cut to their the lowest reading in almost 30 years of 5.5% in November last year and resulted in a real interest rate of about 1%.

Economists said they expected an increase, but not by that much.

Senior economist at Nedbank Carmen Altenkirch, said, “It is certainly a surprise. We were anticipating only 4.3%. The increase probably reflects the impact of previous increases in international food and fuel prices, which we anticipate will continue to flow through.”

Kamilla Golda, economist at ETM, said the data was higher than expected. “Much of the deviation between market expectations and the actual outcome is likely to be accounted for by food price developments. Today’s data doesn’t mean that we won’t see a softer inflation trajectory in the coming months.”

“A higher than expected figure — I suspect that it might be due to the food price side because we had a fairly low survey month in May. This will lift the whole forecast curve higher, which will put a bit more pressure on the SARB compared to a month ago, in terms of interest rates going forward. Having said that, the shape of the forecast curve for a while now has been one that sits above 6% for a few months and then comes back into the target band, and as long as that remains the case maybe we could expect similar thoughts from the Reserve Bank. I don’t think though, that one number will change the whole scenario, which is that we could see an interest rate hike slightly later than earlier,” said Elize Kruger, Kadd Capitalist economist.

Brait economist Colen Garrow said he expects an upward trend to continue. “The 4.6% CPI data confirms what we already know. We anticipate the upward trend to continue into Q4 2011, where it will be at the upper end of the targeted band. The SA Reserve Bank will probably hike interest rates.” — I-Net Bridge