Johannesburg - The highest inflation rate since August 2009 was unlikely to trigger a rate hike, economists said yesterday.
Statistics SA reported yesterday that the consumer price index (CPI) rose 6.4 percent year on year last month, up from 6.3 percent in July, in line with the median estimate of economists polled by Bloomberg and above the ceiling of the Reserve Bank’s 3 percent to 6 percent target rate.
A weak rand, which pushed up the price of petrol by 32c a litre last month, was a major contributor to rising costs. The currency weakened sharply from R8.90 to the dollar early in May to about R9.80 in July and a worst level of R10.40 last month. The petrol component in the CPI rose a massive 23 percent year on year. Petrol has a weighting of almost 6 percent in the CPI basket.
However, rand weakness has moderated. The dollar was bid at R9.824 at 5pm yesterday.
Today the Reserve Bank’s monetary policy committee will wind up its routine meeting on the repo rate, which has been at 5 percent since July last year. Economists agree there is unlikely to be any immediate move in the rate, but differ on when a hike could take place.
Annabel Bishop at Investec predicted inflation would fall back below 6 percent in the fourth quarter.
“September saw a 5c a litre petrol price cut and another cut of 10c is currently being factored in for October. We expect no hike in interest rates this year as there is absolutely no need for any. The subdued nature of economic growth and the persistence of downside risks support the case for keeping interest rates unchanged until the end of 2014.”
She suggested there could even be a case to cut rates by 25 basis points.
Henry Flint, the head of research at Thebe Stockbroking, agreed that a hike would come only next year – probably in the first half. He argued: “The onset and pace of the US winding down of stimulus could play a significant role in the future trajectory of domestic interest rates. A faster growing US economy could boost global growth with positive consequences for South Africa as well.”
Tighter US monetary policy will reduce liquidity, driving up rates globally. In addition, stronger growth in the US will tend to boost domestic growth, opening the way for rate hikes to support the rand and avoid a future spike in inflation.
Elna Moolman at Macquarie First South Securities is bullish on the topic. She expects a rate hike to come only in 2015.
Absa Capital economist Miyelani Maluleke noted that administered prices, such as petrol, water, public transport and electricity, “are rising very rapidly – up 11.1 percent in August. In contrast, inflation excluding administered prices has edged up, but very marginally, from 5.2 percent in July to 5.3 percent in August.”
Maluleke predicted inflation would peak at its current level and average 5.8 percent this year and 5.5 percent next year. He saw the possibility of a 50 basis point increase in the repo rate in September next year. - Business Report