/ 24 February 2010

January CPI dips to 6,2%

South Africa’s targeted consumer inflation slowed slightly to 6,2% year-on-year in January, compared with 6,3% in December, official data showed on Wednesday.

Statistics South Africa said headline CPI stood at 0.3 percent on a monthly basis in January, unchanged from December.

A Reuters poll last week forecast CPI would quicken to 6,4% year-on-year and be at 0,4% on a monthly basis.

Nersa ruling to provide clarity
Annabel Bishop, economist at Investec, was quoted as saying by I-Net Bridge that the figure had remained outside the target range in January due to seasonal and statistical ase effects.

“In particular, many companies institute price increases at the start of the year, with the surveyed
insurance, financial and other services components which make up a significant share of the index, relatively demand inelastic and likely a source of upward price pressure.

“The Nersa ruling today [Wednesday] will provide clarity on the electricity price increase this year, which could range from 25% to 35%, but more likely will be closer to 25%. However, any increase in the electricity price above 6% will place upward pressure on inflation and the double-digit price increase will contribute to keeping CPI inflation around, if not above the 6% upper limit of the inflation target. Today’s outcome does not change our view either in terms of the future path of interest rates or inflation. We believe interest rates will remain unchanged this year, with a possible 50bp
hike in October as monetary policy is returned to a more neutral stance, should the strengthening economy warrant it.”

Carmen Altenkirch, economist at Nedbank, said the good news was that January was likely to be the last month that inflation would be above the target band, at least for this 2010.

“Some upward pressure over the month probably came from services, although this was likely offset by a further decline in prices of some durable goods and lower petrol prices.

“Now we eagerly await Nersa’s decision on Eskom’s electricity tariff, as this will be key to the outlook for inflation this year, not only in terms of the direct impact but also possible second-round effects. Demand-side inflationary pressures in the economy are likely to remain subdued during the remainder of the year, despite this inflation is not expected to fall much below 5%.”

Mike Schussler, an economist at Economists.co.za, said the figure was a reasonably good number given that he had expected 6,7% due to higher oil prices.

“However, this is likely to be short-lived due to Eskom’s application for a 35% tariff hike for the next three years.” – Reuters, I-Net Bridge