Inflation breaches bank’s target range

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IOL pic may20 rsa bank notes Reuters File picture: Siphiwe Sibeko

Johannesburg - The annual inflation rate rose to 6.1 percent last month, breaching the SA Reserve Bank’s target range of 3 percent to 6 percent, according to data released by Statistics SA (Stats SA) yesterday.

The market expectation was for 6 percent.

The main driver was the food and non-alcoholic beverages index, which increased by 1.3 percent month on month.

Stats SA said cellphone costs dropped by 0.8 percent on the month and showed an annual deflation rate of 1.1 percent following the ruling on cellphone termination rates by the Independent Communications Authority of SA.

The core inflation rate (which excludes food, non-alcoholic beverages and petrol) was unchanged at 5.5 percent.

In her monetary policy committee statement in March, Gill Marcus, the governor of the Reserve Bank, said: “While the most recent inflation forecasts suggest marginal improvements in the medium term, upside risks to the inflation outlook persist despite the recent appreciation of the rand, which remains vulnerable to shifts in global risk sentiment and adverse domestic developments. Together with the downside risks to growth, this continues to pose a dilemma for monetary policy.”

Annabel Bishop, the chief economist at Investec, said the upward pressure on the consumer price index (CPI) since November had been driven by high administered price inflation, averaging 8 percent, and the rand’s depreciation, which has seen the petrol price rise R1.22 a litre in this period.

Some retailers had taken the opportunity to pass through higher prices in the face of margin compression, which had been building for a long time.

“However, this has resulted in a number of instances of lower volumes for retailers in the mid- to low-income space.

“With real disposable growth slowing, unemployment high and rising and economic growth slowing materially, households are unlikely to increase consumption (adjusted for inflation) substantially this year.

“Real household consumption expenditure growth is likely to remain on a downward trend,” Bishop said.

She said April’s 6.1 percent inflation rate was historical, and any alteration in the repo rate could not significantly change the outcome for inflation over the remainder of this year, due to the lags involved.

She expected no change in interest rates today.

Econometrix said this was the fifth successive month in which CPI had increased. It said the increase was particularly marked in the case of durable goods, illustrating the fact that the pass-through from rising imported input costs had started exerting a significant upward push on inflation.

Econometrix said the recent strength in the rand and decline in food and fuel prices, together with evidence of weak economic activity, was likely to preclude the central bank from increasing interest rates.

It said that as long as the rand sustained its recent strength, inflation should not rise above 6.5 percent throughout the rest of this year.

Nedbank’s economic unit forecast inflation would rise to 6.2 percent. Yesterday, it said it expected inflation to remain above the central bank’s target range throughout the year and into the first half of next year due to the fragile rand and high food prices.

Gina Schoeman at Citi Research said she continued to forecast a peak in annual CPI of 6.8 percent, but acknowledged that any further upside in the monthly inflation rate could push this slightly higher.



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