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Picture: Pexels

CPI rises above midpoint of Sarb target

By Siphelele Dludla Time of article published Mar 19, 2020

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JOHANNESBURG - Consumer price inflation (CPI) rose above the midpoint of the SA Reserve Bank (SARB) target band for the first time in 15 months, due to higher fuel prices in February, but in spite of this economists still expect that an interest rate cut is on the cards today due to global concerns around the coronavirus.

Statistics South Africa (StatsSA) said yesterday that the annual CPI nudged up by 0.1percentage point month-on-month, from 4.5percent in January to 4.6percent in February after increasing by only 0.3percent the previous month.

Core inflation remained at multi-year lows in January, at a rate of 3.8percent year-on-year versus a prior 3.7percent.

But fuel price inflation remained elevated at 12.7percent year-on-year as petrol and diesel prices were respectively 195c a litre and 148c a litre higher than in February 2019.

However, Investec’s Kamilla Kaplan said fuel price inflation should decrease next month, following the international oil price shock this month.

Oil prices hit their lowest in decades this month with the price of Brent crude oil falling more than 30percent, breaking $26 a barrel, following over supply and low demand, as well as uncertainty over the spreading coronavirus (Covid-19) global pandemic.

“Fuel price inflation is, however, expected to abate in April following the international oil price shock in March 2020,” Kaplan said.

StatsSA said the higher rate of inflation in February was mainly attributable to increased contributions from the food and non-alcoholic beverages, as well as the miscellaneous goods and services components.

Food price inflation lifted to 4.2percent year-on-year in February from a prior 3.7percent, while non-alcoholic beverages inflation slowed to 3.5percent from 3.9percent year-on-year previously.

The higher food price inflation was underpinned by an acceleration in meat price inflation to 4.1percent year-on-year from 2.4percent.

PPS Investments’ portfolio manager Luigi Marinus said the havoc wreaked on the markets by Covid-19 would lower inflation rates going forward.

“Even though inflation increased in February, global concerns pertaining to Covid-19 and the decline in the price of oil is likely to have a deflationary effect going forward,” he said.

Marinus said all eyes would be on the Monetary Policy Committee with the upcoming interest rate decision, following the recent actions by central banks in developed markets.

“The market is expecting a decline in interest rates, but the level of decline might just be a surprise.”

There is enormous pressure for the  Sarb to significantly cut interest rates today in a bid to shore-up the economy amid Covid-19 after a 25 basis points reduction to 6.25percent in January.

BNP Paribas senior economist Jeff Schultz said the co-ordinated global central bank action in the past week had opened the door to a bolder cut from the  Sarb.

“We expect a 50 basis points cut in the policy rate to 5.75percent, though we think a 75 basis points cut is also possible, depending on how large its growth downgrades are.

“While the growth and inflation outlook looks set to weaken, domestic fiscal risks also look set to rise. This is likely to keep the bank's rhetoric cautious. For now, we maintain our call for the policy rate to end 2020 at 5.5percent, though we acknowledge that the risks of a much larger recession than we forecast are building, prompting potentially deeper cuts in the second half.”


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