Domestic inflationary pressures in South Africa remain on the boiler, despite the pullback in international energy prices, according to Moody’s Economy.com.
Benchmark oil continues to hover around the $60 mark, dipping about 30% from its August peak in response to improved supply-side dynamics such as easing tensions in the Middle East.
The SARB’s targeted measure of inflation, the CPIX (headline inflation ex-mortgage costs) rose at an accelerating rate for the fifth straight month in September, jumping to 5,1% — its biggest rise since the same month of 2003.
“The CPIX is nearing at the top end of the central bank’s 3% to 6% target range, all but cementing the case for another 50 basis point rate hike before the end of the year,” Moody’s Economy.com says.
This would push the key repo rate to 9% and, hopefully, start to put a crimp in runaway domestic credit growth, itself a threat to medium-term price stability as excess liquidity looking for returns tends to drive up asset prices, it adds.
It says the shift towards still-tighter monetary policy was reinforced by the lofty gain in factory gate prices, also in September. The PPI climbed 9% y/y. However, the upswing was down from the prior month (9,2%) and ushered-in by a 0,7% m/m dip.
“This only partially reverses August’s 1,5% monthly surge. Also, the trend is still pointing upward as the retreat largely hinged on the cut in global oil prices and a seasonal climb-down in electricity tariffs. Most other prices are rising,” Economy.com adds.
It points out that the rand rallied against the majors in response to the stronger than expected September consumer inflation print, but cautions that mounting concern about the nation’s swelling current account deficit will keep the local currency unit under pressure going into 2007.
“Official jawboning took up this theme once again this week: central bank governor Tito Mboweni mentioned the deficit’s threat to the value of the rand [and therefore a precursor to higher imported inflation] at the very start of the week. It was mentioned again by National Treasury director general Lesetja Kganyago, who went on to stress the country’s rising foreign reserves as a solid shock-absorber with regards to any destabilising external events.
“The Treasury believes the current account shortfall will retreat to 5,7% this year and stay around that level for the next three years,” Moody’s Economy.com says. – I-Net Bridge