CPIX figures ‘seal the case for rate hike’

South Africa’s targeted CPIX (consumer inflation less mortgage costs) rate quickened unexpectedly to a near five-and-a-half year high of 10,4% year-on-year in April from 10,1% in March, official data showed on Wednesday.

The all-items consumer price index (CPI) increased by an annual rate of 11,1%, compared with 10,6% in March, Statistics South Africa said.

On a monthly basis, CPIX was steady at a 1,6% rise while headline CPI increased by 1,8% month-on-month.

Mike Schussler, economist at T-Sec, said: ”That seals the case for interest-rate hikes. Inflation continues to shock. We are in a high GDP slowdown environment, which is not good for bonds nor the local stock market, and in the longer run not good for the rand either. I think this is a country in dire straits.”

According to Monale Ratsoma, economist at Absa Capital, ”these numbers, combined with [Governor of the South African Reserve Bank Tito Mboweni’s] recent hawkish comments, are increasingly pointing to a 50-basis-point rate hike in June, and the market is now pricing in a 70% chance of another rate hike in August.”

Said Annabel Bishop, economist at Investec: ”Annual CPIX inflation rose to 10,4% y/y in April, well above expectations. The key drivers were higher food and petrol prices and household operation costs, with inflationary pressures becoming more broad-based.

”In the absence of substantial hikes in electricity tariffs, CPIX inflation is likely to fall back within the inflation target range in [quarter three of 2009], peaking in 2008 in the third quarter. With electricity tariff increases of 30% per year or more, it would be unlikely to re-enter the inflation target range before 2010.

”We continue to believe that the SARB will hike interest rates by 50 basis points in June and another 50 basis points in August.” — Reuters, I-Net Bridge

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