The spectre of falling inflation has prompted growing demands for further interest rate cuts. But some experts have warned that higher wage settlements and buoyant credit demand may delay such a decision by the Reserve Bank.
Investec Asset Management economist and portfolio manager John Stopford says the bank’s monetary policy committee (MPC) is likely to exercise caution, given recent high wage settlements, high demand for credit and signs of accelerating global growth. Stopford pointed out that the MPC now meets more often and has time to take a more measured approach.
However, he continued to believe that inflation could fall to below 4% by year-end, and that interest rates can be reduced by one percentage point at each of the next three MPC meetings.
The CPIX (consumer inflation less mortgages) figure for June, released this week, was down 0,3% month on month and up 6,4% year on year — just outside the upper end of the Bank’s inflation target. The main contributors were, as expected, declines in food and petrol prices.
In addition, the impact of the strong rand fed through to moderate price declines across a broad range of items including vehicles, tobacco, footwear, household appliances and equipment and entertainment. Electricity prices also came down somewhat.
As expected, a seasonal increase in medical costs and the regular rise in rental inflation limited the size of the monthly decline in CPIX.
On the other side Statistics South Africa revealed on Wednesday that producer prices for all commodities rose 2,3% in the 12 months to end- June from a revised 1,2% for the 12 months to end-May. They were up 1,4% month on month in June from a decline of 1,3% in May.
Producer price inflation (PPI) rose purely as a result of the increase in electricity prices in June — usually implemented in July. Without the increase, June’s PPI would have fallen to 1% year on year.
The June producer inflation rate was expected to be a median increase of 1,9% year on year, according to an I-Net Bridge survey of private sector economists.