Nasty Inflation Numbers

What a busy time for the economists. On Friday, S&P downgraded ZA, while Fitch put us on negative watch.   Then last night, we had a State of the Nation Address by our president which most commentators believe contained little to inspire.  And now today the worst inflation number for some time, with CPI coming in at 6.6%. What do our experts think?

Ian Cruickshanks of the SA Institute of Race Relations:

The May CPI data confirms the stresses on the consumer and on the economy as a whole. CPI reached 6.6% – moving further away from the top of the SARB target range. Major factors were food and fuel.  These are such basics, and it shows that those who are spending 50% of their income on food are under huge pressure.  This leads to a greater risk of social protests.   Looking at the State of the Nation Address, government’s policy of wanting to create more 1m jobs in agriculture will not lead to more efficiency, and I fear food inflation is just going to stay high and risk going higher.  

Mike Schussler of economists.com

This is the worst Inflation since July 2009. It will send shock waves to investors – and savers in the bank now lose 1.1% a year on 5.5% interest. This will send the pigeons out at speed to call for rate hikes.

Nedbank’s Economic Unit:

The annual consumer inflation rate increased to 6.6 % in May, the second month above the 6.0 % inflation target upper band, from 6.1 % in April. This was marginally above our forecast, and the market consensus, of 6.5 %. Overall prices rose by 0.2 %m-o-m after the 0.5 % increase in April, with the food and beverages category rising by 0.9 %. The annual food inflation rate jumped to 8.8 % from 7.8 % in April.   We expect inflation to remain elevated during the remainder of this year and into the first half of 2015 due to a fragile rand and higher food prices.   The inflation outlook remains poor in the short term. The Reserve Bank faces the dilemma of striking a balance between weak growth and rising inflation. However, the Governor has made it clear that the rate-hiking cycle has begun, but the extent and speed of tightening will be data dependent. The first quarter GDP data and continuing turmoil in the mining sector decrease the likelihood of an early rate hike. Any further tightening this year would be on rand weakness. We think that this may happen later in the year but that the main interest rate upcycle will only resume in late 2015 after the US starts raising interest rates.

Conclusion:

High inflation in a stagnant economy.   Inflation on basic commodities.   And a power utility in serious trouble. Not a lot to cheer us up today.

Tweets of the Day:

Mark Twain (@MarkTwainQuote): Better to remain silent and be thought a fool than to speak out and remove all doubt.

Funny Tweets (@Funny_TweetsQ): I’d do anything for a perfect body, except work out and eat less.

 

ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:   zaconfidential@gmail.com     Follow us on twitter: @zaconfidential


One response to “Nasty Inflation Numbers

  • Malcolm

    exactly. If the cause is food, fuel and electricity, how will an interest rate hike help? No-one buys those things on credit. Surely that will just pressurise the producers more, and cause a vicious cycle. Why is that the tool of choice?

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Nasty Inflation Numbers

What a busy time for the economists. On Friday, S&P downgraded ZA, while Fitch put us on negative watch.   Then last night, we had a State of the Nation Address by our president which most commentators believe contained little to inspire.  And now today the worst inflation number for some time, with CPI coming in at 6.6%. What do our experts think?

Ian Cruickshanks of the SA Institute of Race Relations:

The May CPI data confirms the stresses on the consumer and on the economy as a whole. CPI reached 6.6% – moving further away from the top of the SARB target range. Major factors were food and fuel.  These are such basics, and it shows that those who are spending 50% of their income on food are under huge pressure.  This leads to a greater risk of social protests.   Looking at the State of the Nation Address, government’s policy of wanting to create more 1m jobs in agriculture will not lead to more efficiency, and I fear food inflation is just going to stay high and risk going higher.  

Mike Schussler of economists.com

This is the worst Inflation since July 2009. It will send shock waves to investors – and savers in the bank now lose 1.1% a year on 5.5% interest. This will send the pigeons out at speed to call for rate hikes.

Nedbank’s Economic Unit:

The annual consumer inflation rate increased to 6.6 % in May, the second month above the 6.0 % inflation target upper band, from 6.1 % in April. This was marginally above our forecast, and the market consensus, of 6.5 %. Overall prices rose by 0.2 %m-o-m after the 0.5 % increase in April, with the food and beverages category rising by 0.9 %. The annual food inflation rate jumped to 8.8 % from 7.8 % in April.   We expect inflation to remain elevated during the remainder of this year and into the first half of 2015 due to a fragile rand and higher food prices.   The inflation outlook remains poor in the short term. The Reserve Bank faces the dilemma of striking a balance between weak growth and rising inflation. However, the Governor has made it clear that the rate-hiking cycle has begun, but the extent and speed of tightening will be data dependent. The first quarter GDP data and continuing turmoil in the mining sector decrease the likelihood of an early rate hike. Any further tightening this year would be on rand weakness. We think that this may happen later in the year but that the main interest rate upcycle will only resume in late 2015 after the US starts raising interest rates.

Conclusion:

High inflation in a stagnant economy.   Inflation on basic commodities.   And a power utility in serious trouble. Not a lot to cheer us up today.

Tweets of the Day:

Mark Twain (@MarkTwainQuote): Better to remain silent and be thought a fool than to speak out and remove all doubt.

Funny Tweets (@Funny_TweetsQ): I’d do anything for a perfect body, except work out and eat less.

 

ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:   zaconfidential@gmail.com     Follow us on twitter: @zaconfidential


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