Seifsa says this increase does not bode well for hard-pressed businesses in the Metals and Engineering (M&E) cluster. Photo: Picture: Bloomberg

CAPE TOWN – The Steel and Engineering Industries Federation of South Africa (Seifsa) on Wednesday lamented the increase in the annual Consumer Price Inflation (CPI) as announced by Statistics South Africa (StatsSA).

StatsSA announced that year-on-year CPI increased to 5.1 percent in October, from 4.9 percent in September, as well as stating that month-on-month CPI increased 0.5 percent in October. This was marginally lower than analysts expectations of a 5.2 percent increase year-on-year.

Seifsa said in a statement that this increase did not bode well for hard-pressed businesses in the Metals and Engineering cluster, which it said continued to face headwinds amid low levels of domestic demand, a generally weaker exchange rate and increasing operational expenses.

Seifsa economist Marique Kruger said: “An inflationary environment will definitely add to the pressure that local businesses are facing, given its direct impact on consumer demand for goods. 

“Moreover, the generally high petrol price invariably adds to businesses’ logistics costs, and this, in turn, negatively impacts on the cost of doing business. The increase in inflationary pressure is a huge challenge for companies trying to improve on operational efficiency and margins.” 

Transport inflation

FNB chief economist Mamello Matikinca, cited the 99c/l fuel-price hike as the main driver, which translated into a 10.5 percent year-on-year rise in transport inflation. 

“The recent decline in oil prices poses downside risk to our inflation forecast, if sustained headline inflation could average 5.2 percent year-on-year in 2019 against our current expectation of a 5.4 percent average,” said Matikinca.

Kruger said with the official inflation data now trending even closer to the upper band of the South African Reserve Bank’s inflation target of 3 percent to 6 percent, the central bank’s Monetary Policy Committee members would find themselves in a difficult position when they meet tomorrow.

“The decision on whether or not to continue with an accommodative monetary policy stance will be a fiercely contested one, given the official mandate of the SARB to contain inflation from galloping away,” said Kruger. 

She said that given the current state of the economy, leaving the repo rate unchanged will help in reducing borrowing costs, thereby providing impetus for a rebound in domestic growth.

Peregrine Treasury Solutions corporate treasury manager, Bianca Botes, said this hike reignited expectations that the Reserve Bank would move to raise interest rates tomorrow. 

“The Reserve Bank has come under pressure from the International Monetary Fund to maintain inflation at 4.5 percent so as to preserve price stability, while noting that monetary policy is not an effective mechanism to drive growth and should avoid jeopardising price stability for a false sense of potential growth,” said Botes.