South Africa’s targeted consumer inflation likely slowed further in August, but worries about the impact of high electricity prices and wage deals may keep the central bank from cutting interest rates again.
Statistics South Africa will release consumer inflation data on Tuesday just a few hours before the central bank announces its interest-rate decision after a two-day meeting.
The central bank has since December cut its repo rate by 500 basis points to 7% to support an economy in its first recession in 17 years.
A Reuters poll of 16 economist showed annual CPI inflation was seen braking to 6,4% in August from 6,7%. CPI has been slowing since peaking at about 14% in August 2008.
Central bank Governor Tito Mboweni said on Thursday consumer inflation should continue moderating but the pace of decline may be limited by high power price increases and wage settlements.
Electricity prices went up by more than 31% in July and wage deals across most sectors have been above 10%.
Mboweni also said the Reserve Bank’s forecasts consistently showed inflation back inside the 3% to 6% target range over a ”reasonable time horizon”.
On a monthly basis CPI inflation was seen at 0,3%.
”We are looking at a further negative figure from food this month … and there was also a 21 cents a litre petrol price cut in the month. Those are the moderating forces,” said Annabel Bishop, economist at Investec.
”We are in a recession and people can’t put up prices as much as they used to … People are losing their jobs, disposable incomes are falling, there’s just no appetite for higher prices,” she said of her 6,1% forecast for annual CPI.
A strong rand — it has firmed almost 30% to the dollar so far this year — and overall weakness of demand are expected to exert downward pressure on prices.
On producer inflation, the poll showed annual PPI falling 3,5% but analysts say its influence on CPI is limited since the PPI basket is heavily dominated by commodities.
Retail sales for July, which will kick off the heavy data week on Monday, were seen falling by 6% on an annual basis, from a 6,7% decline in June.
”Households will remain under pressure from high unemployment and the effects of large real wage increases will only offset this for some. As such retail sales will continue to remain lacklustre in coming months,” said Peter Attard Montalto, emerging market economist at Nomura International. — Reuters