South Africa’s targeted consumer inflation is likely to have slowed for the first time in a year in September, a Reuters poll showed on Friday, but a sharply weaker rand poses the risk of imported price pressures.
Annual CPIX (consumer inflation less mortgage costs) has clung above the top end of the central bank’s 3% to 6% target band since April 2007 and has been on an uninterrupted upward spiral since September 2007.
A Reuters poll of 18 economists showed the annual rate of change in the CPIX measure is expected to moderate to 13,2% in September after hitting a new record high of 13,6% in the previous month.
The headline annual consumer inflation rate should also ease to 13,3% from 13,7% in August.
The South African Reserve Bank (SARB) has raised the key repo rate by a total of five percentage points since June 2006 in a bid to tame inflation, but left it unchanged at 12% on two occasions after the last half-percentage-point hike in June.
At its meeting earlier this month, the monetary policy committee did not follow the lead of major central banks, which coordinated rate cuts on October 8 to ease pressure on credit markets.
Governor Tito Mboweni said last week the inflation outlook had improved moderately but the sharp depreciation in the rand posed a ”significant upside risk”.
The rand has lost more than 40% of its value against the dollar so far this year, battered in large part by risk aversion in the face of the global credit crisis, originating from the United States subprime market. It traded at 11,48 per dollar on Friday.
”The weaker rand represents a big problem on the inflation front, offsetting the positive impact of lower imported commodity prices,” said IDEAglobal analyst Alvise Marino.
”We believe that it would be foolish for the SARB to expose its credibility by cutting rates.”
The government has resisted pressure from left-wing allies to scrap inflation targets or reduce the band to allow room for rate cuts, but says it will shift the target from CPIX to a re-weighted headline number next year, a move which should see lower inflation figures.
Consumer credit
The Reserve Bank has also tightened monetary policy to clamp down on consumer demand, which has helped drive growth in South Africa over the last few years but has also been inflationary.
In its latest financial stability review on Thursday, the bank said high household debt was a vulnerable point in the local financial system, although analysts say credit demand has cooled notably in response to higher rates.
The Reuters poll showed annual growth in private sector credit extension (PSCE) was seen easing to 17,4% in September from 18,64% in August, while annual growth in M3 money supply was seen at 15,21% from 15,42%.
”Both M3 money supply and PSCE growth are likely to have decelerated meaningfully in September, providing further support for the SARB to keep interest rates on hold, despite recent volatility in the rand, said London-based Standard Chartered economist Razia Khan.
Only half of the economists surveyed gave forecasts for the trade balance — generally volatile and difficult to predict — with the consensus looking for the deficit to narrow to R4-billion in September from R5,12-billion in the previous month. — Reuters