Pleasant Surprise with Inflation Number

There was some good economic news today with CIP inflation for May coming in at 5.5%, below most forecasts. But does this number change the economic landscape? We asked some of our experts…..

Nedbank Economic Unit:

The latest inflation numbers do not alter our interest rate view. We believe that rates will remain at current levels well into 2014. 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.

Peter Attard Montalto from Nomura:

CPI surprised strongly to the downside at 5.5%. The drop was led by household items like furnishings and service prices – showing that there is still minimal wage push inflation occurring from retail sector. Insurance costs, which have a huge 9.9% weight, also surprised to downside. Uncertain survey items like housing actually surprised us slightly to the upside. This number will probably still be seen as a one-off by the SARB, which will still see the same risks around the outlook – but this will reinforce the fact there can be no change in rates this year. The data today does not change our medium-run view of inflation outside target next year on structural issues, and so hikes next year.

Azar Jammine from Econometrix:

There were indeed several price declines that are quite surprising, bearing in mind the fairly steep depreciation of the Rand in May. However, the principal reason for the headline number coming in lower than expected was a steep decline in the inflation rate of public transport, which is difficult to understand given the increases in fuel costs. In addition, what appears to have been a -0.1% decline in inflation when rounded off to the nearest decimal point, actually amounted to merely a -0.017% decline in inflation.Without doubt, the lower-than-expected inflation outcome will tend to reduce inflation forecasts of econometric models marginally and in so doing shift down the probability of any interest rate hikes in the foreseeable future. However, purely on account of the petrol price increases of July and August, the inflation rate is still set to rise strongly in the 3rd qtr, to well in excess of the 6% upper end of the inflation target. Together with the fact that other emerging market central banks have been raising interest rates, it would therefore be wrong to assume that on the basis of these figures, the Reserve Bank will be inclined to reduce interest rates in a hurry.


It may seem good that we have lower than expected inflation, but this might be a way of telling us how slowly the economy is growing. And, as some of our experts suggest, there are rises in sight…..

Tweets of the Day:

EricWest™ (@EricJWest): CONDOM HISTORY: In 1272, the Arabic Muslims invented the condom, using a goat’s lower intestine. (continued)

EricWest™ (@EricJWest): (continued) In 1873, ,the British somewhat refined the idea by taking the intestine out of the goat first. 😉

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