The increase in 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, was up 4,1% year-on-year (y/y) in May after a 3,7% y/y increase in April, Statistics South Africa (Stats SA) said on Wednesday.
CPIX was expected to have increased to 4,1% in May, an I-Net Bridge survey of economists found. Forecasts ranged from 3,8% y/y to 4,2% y/y.
Dawie Roodt, the chief economist at the Efficient Group said: “CPIX was pretty in line with expectations. We expect CPIX to continue to accelerate until about June and then for base reasons to come down again. By the end of this year, we expect CPIX to be just above 5%, but we are certainly not seeing it above 6% as the Reserve Bank is saying.”
Annabel Bishop, an economist at Investec, said the 39c/litre increase in the petrol price contributed 0,4% to the 0,6 % m/m increase in the CPIX
“The CPIX outcome was in line with market expectations. However, the rand’s recent significant weakness could spur further monetary tightening in SA this year, particularly if the US hikes interest rates in H2.06.”
“Consequently, we believe there is a risk the SARB could tighten rates by 50bp in October this year.”
Colen Garrow, economist at Brait, said the CPIX was in line with expectations but he thought the Reserve Bank won’t respond to tame inflationary pressure, “but rather would respond pre-emptively to exogenous influences to impact on inflation, ie, risk aversion towards emerging markets. I think rates are moving up to stabilise the currency and not because of inflation numbers”.
Mike Schussler, economist at T-Sec said: “The figure is much as expected. It boils down to a higher CPIX from now on and we must see how the weaker rand will play out — the market has already discounted the 4,1% and is looking towards next month’s CPIX release as that will be the crucial one. I don’t expect [Wednesday] today’s release to have any effect on bonds, rand or equities.”
Monica Ambrosi, economist at ETM, said: “In general the CPIX figures were not bad and were in line with expectations. Inflation increased quicker at the core consumer inflation level — this is an important rate as it reflects underlying inflation. Core inflation for May came in at 3% instead of 2,8%. Food prices are starting to increase and inflation should move up in the months ahead.”
“Inflation is unlikely to drive interest rates and the South African Reserve Bank could watch the currency for its impact on future inflation. The SARB is likely to watch what happens in global and emerging markets and if there are signs of rand weakness the SARB might hike again.” – I-Net Bridge