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 for its inflation target, rose by 4,2% year-on-year in July after increasing by 3,5% in June, Statistics South Africa said on Wednesday.
CPIX was expected to rise to 3,8% in July from 3,5% in June, influenced largely by higher international oil prices and the lagged effect of the weaker rand, according to a consensus of economists surveyed by I-Net Bridge.
Commented Dawie Roodt, chief economist at the Efficient Group: “Both numbers were worse than what we expected and I suspect oil is probably to blame. It is the first time in a number of months that CPI is higher than our expectations. It probably tells me that the Reserve Bank is not going to cut rates again.”
Mike Schussler, economist at T-Sec, said: “The figure is very much above market expectation. I think it is going to be bad for the bond market and the rand. It is the first bad surprise we have had on the CPIX in the last year. Any more bad surprises will put an interest rate cut on hold.”
The increase is as expected, said Cees Bruggeman, chief economist at First National Bank, “so there is no surprise at that level. We should sustain the current trend and potentially reach 5% to 5,5% some time early next year.”
Magan Mistry, Nedcor economist, said: “The July CPIX seems to show the impact of the higher oil price and together with the higher-than-expected second-quarter gross domestic product data, the chances of an interest-rate cut have been reduced. I expect CPIX to peak at 5% in September 2005.”
The data was higher than expected, said Colen Garrow, Economist at Brait.
“It indicates two things: that inflation is now in an uptrend; and that any hope of another rate cut is a false one — the next move could be higher. I am projecting that interest rates will remain stable into the first quarter of 2006, but by late in the first quarter, we could see a rate hike, of perhaps 50 basis points, as the upper end of the inflation target starts to be challenged,” said Garrow.
“Another big issue in eight to 12 months’ time will be the magnifying effect coming from the low base of inflation data being established, adding to the inflation numbers. For now, this data is dousing any rate-cut enthusiasm prevailing in the market.”
Annabel Bishop, economist at Investec, commented: “July’s CPIX inflation rate rose partly on the back of the petrol-price hike in that month. We expect that CPIX inflation will rise toward the midpoint of the inflation target in the August data. We still believe that the inflation target will be consistently achieved in both 2005 and 2006.
“We recently changed our view to that of an expected 50 basis-point interest-rate cut in October 2005 due to the very moderate CPIX inflation figures (and the significant easing in our 2006 CPIX inflation forecast).
“However, if the sharp climb in oil prices continues instead of oil prices beginning to subside, interest rates are instead likely to remain on hold this year.
“There are no definite indications of secondary price pressures in the July’s data and hence August’s CPIX figure will be closely watched for a final steer on the October monetary policy committee interest-rate decision, although it does currently look as though the committee will choose to leave interest rates unchanged in Q4.05.” — I-Net Bridge