South Africa’s consumer inflation is headed lower in 2003 after peaking in the fourth quarter 2002.
Most economists expect a rapid decline in the year-on-year rate due to base effects as the high monthly increases of the first half of 2002 give way to monthly increases less than half those increases in the first half of 2003.
South Africa’s December year-on-year consumer inflation rate, excluding the effects of mortgage rate changes, which is the South African Reserve Bank (SARB)’s inflation target measure and is called CPIX, eased to a lower-than-expected 12,4% from November’s 12,7% year-on-year. The median forecast for December had been for a 12,5% year-on-year increase.
South Africa’s inflation rate had been pushed higher by the collapse in the rand in the fourth quarter 2001. The rand reached its worst level of R13,86 per dollar on December 20, 2001, and is now some 400 days later almost 60% stronger at R8,70 per dollar.
The reversal in the fortunes of the rand meant that imported producer inflation peaked at 17,4% year-on-year in April 2002. This then filtered down to the domestic and producer inflation rates, which in turn peaked in August 2002.
The all items consumer inflation rate peaked at 14,5% year-on-year in October and the CPIX year-on-year rate peaked in November.
Johan Roussouw of Vector Securities expects the base effects to start kicking in from January 2003 and he is forecasting a 13,4% year-on-year rate for CPI and 11,4% year-on-year for CPIX for this month.
Dawie Roodt of PLJ Financial Services is expecting the CPI year-on-year rate to go near 3% in the second half of this year and the CPIX to reach 5% at the same time.
In January 2002, the SARB did not wait to receive confirming inflation data before increasing interest rates.
In a similar manner, some economists say it should not wait to receive confirming year-on-year inflation data before cutting interest rates.
In any event, the monthly change in the SARB’s inflation target measure, CPIX, peaked at 1,7% in January 2002 and the December 2002 rate is almost a sixth of that rate at only 0,3%.
In 1999, the SARB cut interest rates eight times in ten months, starting in January. – I-Net Bridge