South African consumer inflation shot above the central bank’s target range in December to 6,3%, official data showed on Wednesday, but was distorted by a base effect and should ease in the next few months.
The inflation rate was slightly below forecasts and economists said it should quickly return to the South African Reserve Bank’s target range of 3% to 6%.
“It was in line with expectations … it was mainly influenced by technical factors and we expect it to return below the target-range in March. It also underscores yesterday’s decision to leave interest rates unmoved,” said Ronel Oberholzer, senior economist at IHS-Global Insight.
On a monthly basis, December consumer price inflation (CPI) stood at 0,3% after remaining flat in November but the data is not seasonally adjusted. It was below forecasts for a rise to 0,4%.
Carmen Altenkirch, an economist at Nedbank, was quoted by I-Net Bridge as saying that the sharp increase was largely due to base effects arising from the low petrol price established this time last year.
“The month-on-month increase was mainly due to the higher owner’s equivalent rent, which was surveyed in December.
“Inflation is expected to fall back below 6% by March, remaining within the target band during 2010. The risk to inflation remains on the cost-push side, with the threat of Eskom’s price hikes the key danger,” said Altenkirch.
“The strength of the rand combined with weak domestic demand were the two main factors helping to push inflation, particularly of durable and semi-durable goods, lower during the latter half of 2009. The trend is expected to continue this year, particularly if the rand remains around current levels.”
Annabel Bishop, an economist at Investec, said: “With the demand side of the economy and labour market still in recession and only likely to emerge from it in early 2010, there is little chance of any interest rate hikes before Q4.10. Even this monetary tightening at the end of next year will be heavily dependent on economic performance and may well be delayed until 2011. The move forecast in Q4.10 is based on the belief that monetary policy will be returned to a more neutral stance, should the strengthening economy warrant it. Electricity tariff increases of 35% will keep inflation CPI inflation out of target in 2011 from when the tariff hikes are instituted.
“While the chance of a 50bp cut at the March MPC still remains, it seems that the SARB will keep a close focus on inflation, despite CPI inflation being largely structural [driven by administered prices] in
nature.”
George Glynos, a market analyst at ETM, said: “We’ve held the view for some time that while money supply growth is as soft as it is and private-sector credit extension is contracting then inflation might very well surprise to the downside and we still retain our view that there is still scope for another rate cut — potentially in May.”
Mike Schussler from economists.co.za said the figure had been exected.
“What the figure shows is that the demand side of the economy is still under pressure. CPI is probably going to remain out side the band for the next four to five months.” – I-Net Bridge, Reuters