/ 19 January 2011

December CPI slows to 3,5%

South Africa’s targeted consumer inflation slowed to 3,5% year-on-year in December from 3,6% in November, official data showed on Wednesday.

Statistics South Africa said headline CPI was at 0,2% month-on-month, unchanged from November. Annual inflation averaged 4,3% in 2010.

Economists surveyed by Reuters predicted inflation at 3,55% year-on-year for December while prices were seen rising 0,2% month-on-month.

Gina Schoeman, economist at Absa Capital, said the figure was in line with their forecast.

“But even though we saw the slight slowdown in December, we maintain that inflation in 2011 will be slightly up. The Reserve Bank will still choose to keep the repo rate on hold at tomorrow’s meeting.”

Mike Schussler, economist at Economists.co.za, said the December year-on-year number was slightly higher than he was expecting — which was 3,4%. “I think we can say that inflation is starting to head up and I expect that for January it will be 3,8%. We’ll probably head to over 4% thereafter, and in the next six months — depending on food prices — over 5%. For 2010, I must say that the inflation rate is much lower than I had expected.”

Carmen Altenkirch, economist at Nedbank, said consumer inflation came in below market expectations at 3,5% in December, down from 3,6% in November.

“Inflation is forecast to tick up during 2011, ending the year around 5%, partly due to the low base established in the second half of 2010. However, rising food and fuel costs will also add to upward pressure on inflation. Inflation is expected to remain contained this year, which combined with subdued growth prospects, should keep interest rates on hold throughout 2011.”

Freddie Mitchell, economist at Efficient Group, said 3,5% was on market consensus, so there was no real surprise.

“But the figure is still very low. I think high inflation will catch up a little later in the year.”

Dr Ayodele Akambi, economist at Pan African Capital, said the figure still reflected excess capacity in the economy.

“We also do believe that given the lower overall figure of 4,3% in 2010, the inflation will average 5,5% in 2011, well within the SARB target band, despite the administered prices.” – Reuters, I-Net Bridge