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CAPE TOWN – the increase in South Africa’s Consumer Price Index (CPI) in November could be attributed mainly to higher contributions from the alcoholic beverages and tobacco component, as well as the miscellaneous goods and services components, according to Investec analyst Kamilla Kaplan. 

CPI inflation rose to 5.2 percent year on year in November from 5.1 percent year on year in October, and was slightly higher than the 5.1 percent year on year consensus estimate.

Kaplan said on Wednesday that risks to the inflation outlook remained to the upside, on possible rand depreciation and above inflationary increases in administered prices, particularly electricity tariffs.  

“In the event, CPI inflation would move away from the mid-point of the target range over the South African Reserve Bank’s 12-to-18 month forecast horizon. Should upside risks to inflation materialise, heightened concern over second-round inflation effects would likely see the Reserve Bank hike interest rates further in 2019, likely by 25 basis points in July,” said Kaplan.

PPS Investments portfolio manager Luigi Marinus said the increase was largely aligned to market expectations. 

Marinus said there were only small adjustments to the annualised growth of the sub-groups making up inflation. The month-on-month inflation growth was 0.2 percent, compared with the 0.5 percent growth in October. 

The base effect after the recent increase in transportation costs meant that transport costs only contributed 0.1 percent to the increase in November, compared with the 0.4 percent contribution experienced in October, according to Marinus.

“Even though inflation last breached the top end of the target band in the first quarter of 2017, there is a change in the Reserve Bank’s tolerance to allow inflation to drift higher within the target band of 3 percent to 6 percent. 

“This was evident with the Reserve Bank hiking interest rates at the last Monetary Policy Committee meeting, even though inflation was well below the top end of the band. While there will be a lag in the effect of the latest rate hike, marginal increases to inflation, as seen in November, may not satisfy the Reserve Bank enough to curb rates hikes going forward,” he said.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) was outright disappointed by the latest CPI figures.

Seifsa economist Marique Kruger said given that the demand for the Metals and Engineering (M&E) cluster’s intermediate products was a derived one, based on consumer spending, the persistent rise in inflation was cause for concern.

Kruger said the increase was expected going into the festive season, underpinned by a seasonal pattern of higher consumer spending, galloping November fuel prices and a generally upward-trending Producer Price Index for both the intermediate and final manufactured goods. 

“The latest inflation data is disappointing and does not augur well for businesses in the M&E cluster of industries and the broader manufacturing sector. The concern is that companies will continue to face headwinds, including higher interest rates, operational expenses and inflationary intermediate inputs costs,” said Kruger.