The latest CPI inflation number is out, and it shows inflation rose again outside the 3% to 6% target ban of the Reserve Bank – increasing in August to 6.4% from 6.3% in July. What did our experts think?
Ettienne le Roux from RMB:
The main culprits driving inflation over the month were: Petrol (up 2.4% m/m and 23% y/y (the y/y rate is unchanged from July) Other (a collection of items showing small increases over the month, for example, food (up 0.3% m/m), non-alcohol beverages (up 0.6% m/m), clothing (up 0.8% m/m) etc.) Transport (car prices, petrol, public transport) accounted for 0.2 percentage points of the 0.3% m/m increase in CPI. Core CPI inflation (CPI ex food, petrol, electricity and non-alcohol beverages) dipped slightly to 5.1% y/y, indicative of underlying inflationary pressures still being well contained, at least for now Prospects: CPI, in all likelihood has peaked, and from September onwards should start to slowly moderate back to below 6% by year-end, ending next year at around 5.5%. Key risks to this view are wage demands, the oil price and of course the rand. If CPI inflation follows our trajectory, interest rates should remain constant for a protracted period.
Nedbank Economic Unit:
The main drivers were housing and utilities (1,3 percentage points), transport (1,4 percentage points), miscellaneous goods and services (1,1 percentage points) and food and non-alcoholic beverages (1,1 percentage point). On a monthly basis average prices increased by 0,3 %, mainly driven by the transport category, which rose by 1 % m-o-m, contributing 0,2 percentage points to the headline figure, as well as the residual, which contributed 0,1 percentage point. The food and non-alcoholic beverages category, which increased by 0,3 % m-o-m, as well as housing and utilities (up by 0,8 % m-o-m) also contributed. We expect inflation to have peaked in August and to gradually ease back gradually to within the Reserve Bank’s target range by the fourth quarter of this year. Today’s numbers do not alter our interest rate view. They are generally in line with market expectations and are therefore not expected to persuade the Reserve Bank’s MPC to change interest rates at the end of its meeting tomorrow. We believe that the committee will opt to tolerate high inflation in the short term, especially as indicators suggest that demand driven inflation remains contained, and support the weak economic growth by maintaining the current policy stance well into 2014.
Conclusion:
Inflation is around the level economists had expected, but it is still uncomfortably high. Not enough, we think, to prompt an interest rate hike, but nowhere near the level at which a cut might be contemplated.
Tweet of the day:
sabelo ndlangisa (@Bhintsintsi): If 20 South Africans got lost in a forest, the first thing they’d do is to appoint a commission or task team to figure out what happened.
ZA Confidential is e-mailed to subscribers. For details on subscriptions, please contact zaconfidential@gmail.com
ZA Confidential 