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 4,4% year-on-year in October after increasing by 4,7% in September, Statistics South Africa said on Wednesday.
The median forecast for CPIX was 4,5% year-on-year, while for CPI it was 4,2%. Economists’ forecasts for CPIX ranged from 4,4% to 4,7%, while the range for CPI was from 4,1% to 4,4%.
Commented Christo Luus, Absa chief economist: “October CPIX at a 4,4% increase is fairly low. It is a good figure and bodes well for no hike in interest rates in December. In 2006, we expect new factors to come into play due to the strong credit growth; expenditure and pressure should also build on the current account.
“We expect a 50-basis-point hike in the repo rate in February 2006, followed by another 50-basis-point increase in April.”
Colen Garrow, economist at Brait, said: “It is not enough to justify a rate hike next month. We are still looking at rate hikes, which will happen possibly in 2006, but it would be premature to hike rates next month. CPIX is below the mid-point of the target range, which is very promising. It shows inflationary pressures are still benign. Second-round inflationary pressures are in the pipeline and should surface early next year.”
Mike Schussler, economist at T-Sec, said: “We are very happy and think that the chances of interest rates going up have now been reduced to zero. This is the 15th time out of the 20 months that CPI has come in under market expectations.
“I think the Reserve Bank should investigate why market expectations and their own expectations are always higher than reality recently. Good for the bond market, the rand and equities.”
The CPIX inflation rate fell in October due to statistical base effects, said Annabel Bishop, economist at Investec.
“The outcome was lower than expected and no second-round effects from high transport costs were evident in the data,” she said. “We expect that CPIX inflation will subside further in Q4.05, ending the year close to 4% year-on-year.
“We believe the inflation target will be consistently achieved in 2006 and expect the MPC [monetary policy committee] will leave interest rates unchanged for the remainder of this year. The risk to this forecast is a December 2005 interest-rate hike [of 25 basis points].”
Tebogo Hlabioa, economist at Metropolitan Asset Managers, commented: “These are really good numbers and I expect the MPC to hold interest rates at their December meeting.
“Going ahead, the figures might go up a bit due to food prices, but that shouldn’t be a huge threat to inflation because there would be a counter-effect from energy prices, which are currently stable.” — I-Net Bridge