MICHAEL METELITS, Johannesburg | Tuesday 1.45pm.
HIGHER inflation figures are unlikely to get in the way of expected interest rate cuts, according to economists reacting to Tuesday’s Consumer Price Index (CPI) figures released by Statistics South Africa.
Overall CPI rose to 7,3%, while core inflation rose to 8,0%. Both indices gained 0,2% on increases in housing and transport costs. The markets were surprised by the increases, expecting recent gains to continue.
Kristina Quattek, chief economist at ING Barings, notes, “the repo rate has continued to come down in recent days”, and believes a further cut in prime interest rates is likely in the near future. The recent figures showed oil price rises “feeding through”, according to Quattek, but are unlikley to stall the current downward trend in rates.
“The SARB will be looking at the core inflation rate,” says Quattek, but a lot of other pressures are still pushing rates lower, particularly the repo rate.
Mike Schussler, chief economist at FCB Securities, basically agrees that rates are coming down, but extends the trend.
Schussler cautions against over-interpreting the June figures, pointing up external fuel price rises and the lack of a prime rate cut as reasons for the rise. He says, “the core rate is actually heartening, despite the slight rise.”
Schussler thinks prime rates are likely to come down to 16% this year, and if repo and other trends continue, see prim at 15% or even 14% next year..