South Africa’s consumer price index excluding mortgage rate changes (CPIX) for metro and other areas, which is used by the South African Reserve Bank (SARB) for its inflation target, rose by 3,5% year-on-year (y/y) in June after increasing by 3,9% y/y in May, Statistics South Africa (Stats SA) said on Wednesday.
CPIX was down 0,2% month-on-month (m/m) in June compared with a 0,2% m/m increase in May.
Headline consumer prices — the 12-month rate of change in the consumer price index (CPI) for metropolitan areas — was up 2,8% y/y in June from a 3,3% y/y increase in May.
The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, was up 3,6% y/y in June compared with a 4,3% y/y rise in May.
Economists expected CPIX to be 3,8% y/y in June with the range from 3,6% y/y to 4,2% y/y according to an I-Net Bridge survey.
The June headline consumer price index (CPI) for all items was also expected to ease with the median forecast at 3,1% y/y, with the range of CPI forecasts was from 2,9% y/y to 3,5% y/y.
Mike Schussler — economist at T-SEC:
”This is a brilliant figure. I think it is the 9th time in 13 months that we have seen a below expectation inflation figure. This is going to be good for the rand, equities and the bond market.”
Dawie Roodt — chief economist at the Efficient Group:
”This is very good. The chances are getting better and better for another rate cut. What is interesting for me is that there is not as much flow through from PPI to CPI as I expected — it means the retailers are absorbing some of the price pressures.”
Annabel Bishop — SA Economist Group Economics Division at Investec:
”June’s CPIX inflation rate dropped, partly on the back of the petrol price cut in that month. However, we expect that CPIX inflation will now rise gradually toward the midpoint of the inflation target in Q3.05.
”We still believe that the inflation target will be consistently achieved in both 2005 and 2006. However, our central interest rate forecast has now changed and we believe that interest rates are likely to be cut by 50bp in H2.05, unless the trade-weighted rand experiences marked weakness in the remainder of the year [not our central forecast].”
Rudolf Gouws — chief economist at RMB:
”The figures are better than what we anticipated, we had expected a flat month-on-month. By year-end or maybe early next year we should be over 5% year-on-year. But along with the Reserve Bank we expect the inflation to remain well within the range given that we’re likely to have no changes in the repo rate this year.”
Colen Garrow — economist at Brait:
”The data was much better than I had expected [which was near 4%]. It looks good and is good news for long-term interest rates and for those hoping for lower short-term rates, but I do feel the oil price effect is still with us. Because of this the general trend is still for prices to move higher — due to the oil price and other factors such as credit and monetary growth.
”There is still more to come in terms of the oil price and we are likely to see the second- and third-round effects of the higher oil price in the next six to eight months. Overall the June data is a step in the right direction, but it doesn’t change my outlook for interest rates to remain on hold.”
Jac Laubscher — Sanlam group economist:
”It was certainly a surprise on the positive side, but it doesn’t justify an interest rate cut on its own — it is only one month of data and is historic data at that, so we won’t be changing our interest rate outlook for rates to remain flat. However, we will be lowering our inflation forecast for the year marginally.
”One thing I have an uneasiness about is the very low food inflation data, which keeps being one of the main reasons behind the inflation figures surprising on the downside. Food inflation has been below 2% y/y since June 2004, continuing to drop all the time. This stands out, in that the relationship between local food price moves and international trends has broken down in the past year if one looks at
the rise in the Economist food price index in rand terms versus local food price moves as measured by Stats SA. It could point to something Stats SA is not capturing.” – I-Net Bridge