22 May, 2013 13:37

CPI Inflation at 5.9%.

Inflation is within the Reserve Bank’s target range. Just. But the economy is limping badly. So will there be an interest rate cut tomorrow? We asked a few experts/?

Expert views

1. Nedbank’s economic unit

Annual consumer inflation at 5,9 % in April came in higher than market and Nedbank expectations of 5,7 %. On a monthly basis inflation increased by 0,4 %. The upside surprise relative to our forecast stemmed from food prices which increased 0,5 % m-o-m in April. Despite just hovering below the Reserve Bank’s 6 % upper target range, we do not foresee annual inflation breaching 6 % in the May release as the fuel price declined considerably in that month. We still expect inflation though to marginally breach 6 % later in the year. The biggest upside risk still remains the rand which has now reached a four year low against the US dollar. The latest inflation numbers do not alter our interest rate view. We believe that rates will remain at current levels for the rest of this year. The MPC will need to strike a balance between high inflation and still poor economic growth outcomes, with the current policy stance likely to remain in place well into 2014.

2)John Loos from FNB:

This rate comes as a slightly negative surprise, perhaps, with some expectation that lower year-on-year petrol price inflation may have contributed to a slightly lower overall inflation rate. The current 5.9% CPI inflation rate remains negative for disposable income growth in real terms compared to recent years where it was considerably lower. This relatively high inflation rate, coupled with ongoing mediocrity in economic growth, makes it likely that real household disposable income growth will continue its slowing trend in the near term. The current 5.9% CPI inflation rate, which is very near to the 6% upper inflation target limit, coupled to recent Rand weakness which could conceivably exert some upward pressure on imported goods prices should it be sustained, probably doesn’t make a SARB interest rate cut likely at the present time. The FNB view is that interest rates will remain unchanged until the 2nd half of 2013. At that stage, dampened inflationary pressures in a mediocre global and domestic economic environment are expected to make an interest rate reduction more likely. No interest rate reduction would mean no decline in household net interest payments, and thus a neutral impact on disposable income growth. The key “upside risk” to inflation forecasts, however, is high wage demands which threaten to exert upward pressure on inflation. However, this is not a foregone conclusion, as such demand need not translate into actual wage increases, and if they do, labour shedding can still contain unit labour cost increases.

3)Jeff Osborne from the RMI:

Inflation is not being driven by consumer spending – it’s cost driven. The weak rand and the high price of crude oil are stoking inflation. I don’t think the authorities should be influenced by the inflation rate against a further reduction in interest rates. The economy needs stimulation, and a cut in interest rates could help consumers bring down their debt, and could bring greater disposable income for consumers. Lower interest rates would serve to boost levels of trading within the motor industry. Our members are predominately small businesses, and have seen a decline in consumer spending.


Most experts expect no change in interest rates tomorrow. But ZA Confidential wants to see a cut. Watch this space.

Tweet of the Day

Jay Leno (@jayleno) Porn stars say that banks are refusing their business. Weird. You’d think if anyone understood screwing people for money, it’d be the banks.

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