/ 30 August 2006

CPIX a ‘bad shock to the system’

The increase in South Africa’s consumer price index excluding mortgage rate changes (CPIX) for metro and other areas, used by the South African Reserve Bank (SARB) for its inflation target, was up 4,9% year-on-year (y/y) in July after a 4,8% y/y increase in June, Statistics South Africa (Stats SA) said on Wednesday.

CPIX was up 1,1% month-on-month (m/m) in July after it increased by 0,5% m/m in June.

Headline consumer prices — the 12-month rate of change in the consumer price index (CPI) for metropolitan areas — was up 5% y/y in July from a 4,9% y/y increase in June.

The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, was up 3,8% y/y in July from an increase of 3,7% in June.

CPIX was expected to have grown at 4,7% in July, an I-Net Bridge survey of 11 economists found. Forecasts ranged from 4,4% y/y to 5% y/y.

Annabel Bishop, an economist at Investec said the CPIX figure had edged up due to pressure from food, transport, housing and fuel and power costs.

“The worse than expected CPIX figures increases the chance of a 50bp hike at the October MPC meeting.”

George Glynos, a market analyst at ETM said it was “not very good news at all”.

“A reading this high is likely to fuel the probability that there will be a rate hike in October and December. The underlying inflationary pressures are still strong and, bearing this in mind, I think the South African Reserve Bank will err on the side of caution.”

Dawie Roodt, the chief economist at the Efficient Group, said the number was slightly worse that he had expected.

“After the credit numbers this morning I’m afraid there is a possibility that rates may increase by more than we thought so far.”

Mike Schussler, an economist at T-Sec said the figure was a “bad shock to the

system”.

“One would have suspected that the CPIX would have come in lower than last month, but this heightens the chance of more interest rate hikes in the future. It is not going to be good for the bond market. I think it will be rand neutral, but the bond market specifically will take a lot of adjustment.” ‒ I-Net Bridge