Relief for consumers as CPI hits two-year low

Consumers can expect the South African Reserve Bank (SARB) to cut interest rates, the consumer price index (CPI) hitting its lowest levels since 2016. It shows that prices increased by 4% in February in comparison to the previous year. This is down from January’s 4.4%.

“The three main reasons for the benign growth was that the price of food and non-alcoholic beverages experienced a zero increase; housing and utilities, which makes up nearly a quarter of the index, was up only 0.1%; and the fuel price declined by 1.8%,” says Luigi Marinus portfolio manager at PPS Investments.

Marinus added inflation is now below the midpoint of the 3% to 6% target band for the Reserve Bank, which will put pressure on it to cut interest rates later this month. “They will have to keep in mind the influence of the increase in VAT which comes into effect on April 1 and the fact that the current account deficit widened from 2.1% of GDP to 2.9% of GDP.”

The stability seen in the level of the rand which has been significantly stronger than one and two years ago, needs to be considered. “The positive effect of the strong rand on inflation will unravel if relative strength is not maintained.”

The SARB has managed to keep within its mandate to keep inflation at low levels. South Africans will be expecting cuts in interests rates when the opportunity to do so seems evident, says Marinus.

Nedbank expects inflation to increase in the coming months, however it will remain below the SARB’s 6% upper target range for the rest the year. “The April number will be of importance.”as the increased fuel levy and the increase in VAT take effect, upward pressure is also likely to emanate from high oil and food prices towards the middle and end of the year”.

Price increases slowed in February on an annual basis despite an 0.8% increase from January to February.

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