/ 19 December 2007

‘Ugly’ CPIX strengthens case for rate hike

South Africa’s targeted CPIX inflation rate quickened to 7,9% year-on-year in November from 7,3% in October, official data showed on Wednesday.

Statistics South Africa also said that the all-items consumer price index (CPI) increased by an annual rate of 8,4%, compared to 7,9% in October.

On a monthly basis, CPIX rose by 0,5% in November compared to 0,7% growth previously, and headline CPI increased by 0,4% month-on-month.

A Reuters poll had forecast CPIX would tick up to 7,8% year-on-year and predicted a rise of 0,4% month-on-month.

Mike Schüssler, economist at T-Sec, said the figure was above expectations, and this would increase the risk of a further interest-rate hike.

”By no means is the inflation trajectory over, inflation will go well over 8% in December.”

Nicky Weimar, economist at Nedbank, said the figure was in line with expectations.

”Unfortunately, it is an ugly number and we all know that it is going to get worse before it gets better.

”Going forward, the outlook for interest rates will depend on the economy, and if there is clear evidence that consumer spending is slowing then the [South African Reserve Bank] will have reason to pause.”

Ridle Marcus, economist at Absa, said he number for December would be important for policy purposes and that CPIX would probably come in around 8,5% in December.

”This will be the number that will be considered by the MPC at the end of January. I still expect CPIX inflation to peak in February 2008.”

Annabel Bishop, an economist at Investec Group, said the chief driver was, once again, the increase in food-price inflation.

”CPIX inflation is likely to only fall back within the inflation target range toward the end of 2008, peaking close to 9% y/y at the end of Q1,08. There is now a greatly increased chance of a 50bp hike at the January 2008 MPC meeting.” – Reuters