FNB: Poor most hurt by inflation

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Johannesburg - The poor would feel the effects of changes in consumer price inflation (CPI) more severely than others because of the higher weighting of food in their expenditure baskets, FNB said on Wednesday.

“However, this situation may be slowly turning for the better as food price inflation seemingly starts to turn the corner downward,” household and property sector strategist John Loos said in a statement.

The lower income group had a CPI rate of 6.76 percent in June, which declined to 6.61 percent in July.

“However, while starting to slow, this rate remains higher than the very high expenditure group's 6.3 percent in July, with the other three expenditure groups somewhere in between,” Loos said.

“For the time being, therefore, the lowest income groups continue to experience the highest consumer inflation.”

Earlier on Wednesday, Statistics SA said the CPI for all urban areas was 6.3 percent in July compared to 6.6 percent in June.

On average, prices increased by 0.8 percent between June and July this year.

Loos said food and non-alcoholic beverages remained one of the most troublesome areas of CPI, with the inflation rate of this sub-index well above overall CPI at 8.83 percent year-on-year.

Of some consolation, especially for lower income groups, was that the sub-index's year-on-year rate had not become worse in the past two months.

One of the implications of the latest CPI figures was that FNB expected a further 25 basis point interest rate hike before the end of 2014, bringing the prime rate to 9.5 percent.

They further expected it to rise to 10.25 percent at the end of 2015.

CPI was forecast to average 6.2 percent for the entire 2014, and move back to an average of 5.5 percent in 2015.

This was based on the assumption that the rand performed fairly well, and that its year-on-year rate of depreciation would gradually diminish, now that a very weak base had been created.

StatsSA said most municipalities introduced new tariffs in July each year, resulting in housing and utilities contributing 0.5 of the 0.8 percent price increase.

Electricity tariffs increased seven percent, slightly lower than the maximum 7.4 percent stipulated by the National Energy Regulator of SA.

Water and assessment rates, which were not regulated, increased more, by 9.2 percent and 7.2 percent respectively.

The petrol price increased by a moderate 29 c/l in July, which brought the annual increase in petrol down to 8.3 percent, from the short-term peak of 14.3 percent seen two months ago.

Last July, the annual increase in the petrol price was 22.6 percent.

Food inflation appeared to be moderating as prices dropped from last month in the bread and cereals (one percent), meat (0.3

percent) and fats and oils (1.4 percent) categories.

The drops were largely as a result of improved harvests of grains (maize and wheat) and oil-bearing plants (sunflowers). Maize forms a large part of the feed for cattle and chickens. - Sapa



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