Expected interest rate hikes by the South African Reserve Bank (SARB) could be delayed until next year after May consumer inflation data came out lower than expectations, according to Investec.
May CPIX (headline consumer inflation less mortgage costs) data released earlier on Wednesday by Statistics South Africa came out at 0,1% month on month and flat at 4,4% year on year, lower than the market forecast of 0,3% month on month and 4,6% year on year.
Commenting on the data, Investec Asset Management portfolio manager John Stopford said: “Yet again, most of the surprise was in food prices, which remain very well behaved. Just like last month, the bigger increases that have been reflected in wholesale meat prices did not filter through fully to the consumer level, while there were outright falls in vegetables and fruit and nut prices.”
The other area that was significantly better than expectations was the fall in the price of medicine, Stopford pointed out.
“We now believe that it is increasingly unlikely that inflation will breach the upper end of the inflation target (of 4% to 6% CPIX) this year, although CPIX is expected to do so at some point later next year. Inflation is still bottoming out, but is taking longer to do so than originally expected, aided by the exceptionally strong rand and subdued food prices.
“This means that although we still expect two 50 basis point hikes in interest rates in this cycle, the timing of those hikes may well be pushed out,” Stopford concluded. – I-Net Bridge