South Africa’s main inflation gauges came in below forecasts on Wednesday, but the jury was still out on whether the central bank would hold off hiking interest rates further as it grapples with runaway consumer spending.
Statistics South Africa said the targeted CPIX inflation rate rose by a lower-than-expected unchanged 5% in the year to November while headline CPI was also flat at 5.4 percent, reflecting mainly a cut in retail fuel prices.
On a monthly basis, CPIX decelerated by 0,1 percent, as did headline CPI inflation.
”The better than expected CPIX outcome significantly reduces our forecast CPIX inflation figures for the first quarter of 2007, making it unlikely that the [central bank’s] inflation target will be missed,” said Investec analysts Annabel Bishop.
”We continue to forecast flat interest rates for most of 2007, with the possibility of a 50 basis point cut at the October 2007 monetary policy committee meeting,” Bishop added.
A Reuters poll had predicted CPIX would rise by 5,2% year-on-year and 0,2% month-on-month while CPI was seen at 5,7% year-on-year and up 0,2% on the month.
Another rate hike?
This would have raised the likelihood of another rise in the central bank’s key repo rate, which it has already hiked by 200 basis points to 9% in four stages since June.
But some analysts believe the authorities could still announce a further rate hike in February in a bid to keep CPIX within a targeted 3% to 6% range.
Central bank Governor Tito Mboweni said earlier this month the main indicator was set to breach the upper end of the range next April, before declining.
”Today’s better-than-expected inflation report may lead many to argue that rates may have peaked, but we remain sceptical,” said Adenaan Hardien, chief economist at Africa Harvest.
”Rather than indicating easing inflation pressures, today’s release is more a reflection of a dearth of price surveys in the November CPI report. (CPIX) inflation will likely breach 6 percent over the second quarter of 2007 and slip below the target by the third quarter.,” he added.
The rand currency, which has weakened nearly 10% against the greenback so far this year, appeared to shrug off Wednesday’s inflation data, and was virtually unchanged at 7,0020/dollar.
Yields on the benchmark R157 government bond due in 2015 were down 3,5 basis points at 7,935%.
Analysts said the market would be watching factory gate price data due out on Thursday for any indications that inflationary pressures were on a sustained decline.
George Glynos, the market analyst at ETM said: ”It’s a pleasant surprise. It’s difficult to comment not having seen the breakdown yet, but I suspect that the food component may have come in a bit softer than expected. This will be good for bonds and also underpins the gains we’ve seen on the stock market. If there is a rate hike next year, it’s likely to be the last.”
Dawie Roodt, the chief economist at the Efficient Group said the figure was better than expected.
”For the last two months or so I’ve been getting more and more worried about a rate increase in February. I still think we are going to get one in February, but I’m not sure any more. I think the 5% CPIX suggests that CPIX will not go above 6% although it will still be close to 6%.”
Johan Rossouw, the chief economist at Vunani Capital said the figure was better than the market was expecting.
”It vindicates our house view that we will not see any further interest rate hikes in the current cycle.”
Kabelo Masike, a senior economist at Eskom Treasury, said the numbers had slowed somewhat, which was a positive move.
”This is an ideal time for consumers to slow down as we approach Christmas. It would reduce pressure on the Reserve Bank to raise rates again in February.”
Annabel Bishop, an economist at Investec, said: ”Food price pressure only contributed 0,1% to m/m inflation, but was widely expected to contribute more.”
”The better than expected CPIX outcome significantly reduces our forecast CPIX inflation figures for Q1.07, making it unlikely that the inflation target will be missed. We continue to forecast flat interest rates for most of 2007, with the possibility of a 50bp cut at the October 2007 MPC meeting.” ‒ I-Net Bridge, Reuters