SA inflation eases further

Consumer inflation eased further for a third consecutive month in November, Statistics South Africa (Stats SA) said on Wednesday.

According to the Pretoria-based agency, CPIX (headline inflation excluding mortgage interest costs) came in at 12,1% year-on-year from 12,4% the previous month.

Stats SA said the all-items consumer price index, or CPI, rose annually by 11,8% compared with 12,1% in October.

On a monthly basis, CPIX stood at 0,2% in November, while headline CPI was at 0,1%.

The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, was up 12,6% year-on-year in November from 13,1% year-on-year in October.

Nedbank economist Carmen Altenkirch reacted to the data by saying: ”Although it’s above expectations, it looks like we are slowly getting inflation into the bottle.

”Going forward, inflation is expected to be in the single digits by the start of next year due to lower oil prices and base effects, as well as the introduction of the new inflation methodology.

Food prices should drop
”With international food prices heading lower, and a good summer harvest expected, food prices should also start falling soon. We could see inflation easing further than expected, particularly if the downturn in the economy proves more severe, and retailers and manufacturers are forced to cut prices to clear stock.”

Doret Els, economist at Efficient Group, said: ”It’s slightly above expectations, but it’s not worrying. It is still below the 12,4% we saw in October, showing that inflation is still following a downward trend.

”We can expect the December figure to show a more significant decline as a result of the decrease in the petrol price, among other factors.”

South Africa is seeing a broader deflationary trend, commented Colen Garrow, an economist at Brait, adding that ”the number should be a catalyst for another rate cut when the MPC [Monetary Policy Committee] meets again in February next year. It is now a question of how much of a rate cut we could expect”.

Kgotso Radira, Investec economist, said: ”This outcome was higher than market expectation but in line with our own forecast of 12% year-on-year.

”Today’s outcome [despite being higher than consensus] supports the South African Reserve Bank’s decision to lower the repurchase rate last week, as targeted inflation seems to have peaked in August.

”We expect targeted inflation to continue on its downward trajectory and re-enter the target band in the third quarter of 2009 — similar to the Reserve Bank’s forecast.

”Domestic economic growth is expected to slow for longer than previously expected and this will likely result in economic policies being focused more on averting a recession, similar to prevailing international trends.

”CPIX will no longer be used as a target measure as of January 2009. It will be replaced by headline CPI for major urban areas. The inflation target range will remain unchanged at 3% to 6%.

More interest rate cuts
”We expect another interest rate cut at the next MPC meeting, as the Reserve Bank will have the full 2008 inflation data based on the new inflation basket weights.

”If indeed the new data shows a substantial fall in inflation, then the Bank might consider cutting interest rates more aggressively.

”We expect interest rates to be lower by around 300 basis points [if not more] by year end next year.” — I-Net Bridge, Reuters, Sapa

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