/ 26 March 2008

Inflation jumps to 9,4% in February

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 9,4% year-on-year in February from 8,8% in January, Statistics South Africa said on Wednesday.

CPIX was up 0,4% month-on-month after it increased by 1,2% in January.

This is the 11th month running that CPIX has been above the 6% upper target limit.

Headline consumer prices — the 12-month rate of change in the consumer price index (CPI) for metropolitan areas — were up 9,8% year-on-year in February from a 9,3% increase in January.

The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, was up 8,9% year-on-year in February from 8,1% in January.

CPIX was expected at 9,4%, an I-Net Bridge survey had found, with forecasts ranging from 9,2% to 9,6% and from just 4,9% a year ago. Headline CPI was expected to have increased to a heady 9,9%, surpassing the high levels seen in early 2003. Forecasts for CPI ranged from 9,3% to 10%, from 5,7% a year ago.

Annabel Bishop, economist at Investec, commented: “Annual CPIX inflation jumped up in February, to 9,4% year-on-year, as expected. The key drivers were higher food and petrol prices. CPIX inflation is likely to only fall back within the inflation target range in Q1.09, peaking close to 10% year-on-year in March.

“There is a rising possibility of a 50-basis-point hike at the April MPC [monetary policy committee] meeting. While our official view is one of no change in interest rates in April, we will wait for the publication of the PPI figures tomorrow before making our final call.”

Said Nicky Weimar, economist at Nedbank: “No surprises this time, but the broader picture for inflation is that it’s likely to be higher in the coming months and it may even peak at 10%.

“Our view on interest rates is that they are likely to be kept on hold, but the [Reserve Bank] might become overzealous in stamping out inflation by hiking in April. For us the best move is to keep rates on hold because the slowing economy might become a deflationary force.”

Though in line with expectations, the “figures show how inflation is spinning out of control”, said Mike Schussler, economist at T-Sec. “We are in a situation, with the planned Eskom price hikes, that will see these figures go well beyond 10% in the second part of the year.

“Double-digit inflation figures are now more likely than not. This will not be good for bonds or the rand. While expected, these are still shocking figures.”

Statistics South Africa said the annual increase of 9,4% in the CPIX for metropolitan and other urban areas was mainly due to relatively large annual contributions in the price indices for food (four percentage points), transport (1,9 percentage points) and housing excluding interest rates (0,9), among others.

This was counteracted by a decrease of 0,1 percentage points in furniture and equipment.

The annual increase of 9,8% in the CPI for metropolitan areas was mainly due to relatively large annual contributions in the price indices for food (3,3 percentage points), housing (two percentage points), transport (1,9), medical care and health expenses (0,5), fuel and power (0,4), household operations (0,4) and education (0,4).

Annual CPIX for 2007 was reported at 6,5% from 4,6% in 2006, while annual CPI was at 7,1% from 4,7% in 2006. — I-Net Bridge