/ 28 January 2009

Consumer inflation drops further

Consumer inflation eased further in December, Statistics South Africa said on Wednesday, raising the possibility of a 100 basis points cut in the repo rate by the South African Reserve Bank next month.

December CPIX (headline inflation excluding mortgage interest costs) came in at 10,3% year-on-year from 12,1% the previous month, the Pretoria-based agency said.

This was in line with analysts’ expectations of between 10,2% and 10,4%.

”This is very good news even though it was expected — inflation has ended the year on a downward trajectory,” Nedbank economist Carmen Altenkirch said.

The drop in inflation for December could mainly be attributed to an 18% cut in petrol prices for the month, she added.

Altenkirch expected January inflation to come in at between 7% and 8%.

The December data also strengthened the case for fairly aggressive rate cuts.

”The SA Reserve Bank will probably be less conservative about rate cuts and will probably cut the repo rate by 100 basis points in February,” Altenkirch said.

”It must also be remembered that since the SA Reserve Bank’s last meeting in December, there has been a significant deterioration in the domestic economy.”

For 2009, she said she expected rates to be cut by between 400 and 450 basis points.

Russell Lamberti, market analyst at ETM, said: ”It’s a fairly encouraging number. To a large extent the market is looking to the January number that will be released in February. If anything it’s going to solidify rate cut expectations.

”Looking ahead to next week, although inflation is coming down quite nicely, we’re still looking at a rate cut of 50 basis points rather than 100 basis points because of ongoing vulnerability on the currency.”

Also upbeat about the figure was Fanie Joubert, an economist at Efficient Group. ”That is much better than expected. It shows that the cooling trend in inflation is continuing and that is definitely a positive sign,” he said.

”This provides more scope for more interest rate decreases in the near future.” — I-Net Bridge, Sapa