The fuel price decreased between 4 cents and 14c a litre in January, while food price inflation dipped to 3.7 percent from 3.8 percent in December. Photo: Motshwari Mofokeng/African News Agency (ANA)
The fuel price decreased between 4 cents and 14c a litre in January, while food price inflation dipped to 3.7 percent from 3.8 percent in December. Photo: Motshwari Mofokeng/African News Agency (ANA)

Inflation hike thwarts a potential rates reprieve

By Siphelele Dludla Time of article published Feb 20, 2020

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JOHANNESBURG – The country's consumer price inflation in January surged to 4.5 percent on fuel prices, thwarting prospects for a potential rates reprieve, but remained within the SA Reserve Bank’s (Sarb's) mid-term target range of 3 to 6 percent.

Data from Statistics SA (StatsSA) on Wednesday showed that inflation accelerated from 4 percent in December but fell marginally lower than the market expectation of a 4.6 percent year-on-year increase.

StatsSA said the major drivers of the January uptick were transport costs, housing and utilities as well as miscellaneous goods and services.

Matlhodi Matsei, an economist at FNB, said consumer inflation this year was expected to remain unchanged at just above 4 percent as muted growth in consumer income persisted.

Matsei said fuel prices were expected to remain contained this year.

“The inability of businesses to pass on material price increases to consumers due to constrained consumer income growth will likely continue,” Matsei said. “Furthermore, international oil prices are poised to remain contained, on average, amid excess supplies and a mild global growth recovery.”

The fuel price decreased between 4 cents and 14c a litre in January, while food price inflation dipped to 3.7 percent from 3.8 percent in December.

In January, the central bank's monetary policy committee unanimously voted to reduce the repo rate by 25 basis points 6.25 percent. The bank last slashed the repo rate in July 2019.

Investec economist Kamilla Kaplan said the increase in inflation could be chiefly ascribed to statistical base effects in the fuel price component.

Kaplan said the annual contribution from the transport category to headline CPI inflation increased to 0.9 percent in January from 0.5 percent previously. “Food price growth is expected to remain contained on slower maize and meat price inflation in coming months,” Kaplan said.

“Core inflation should remain modest as subdued conditions in the property market and the broader economy are expected to persist.”

Core inflation moderated further to 3.7 percent, from 3.8 percent previously, against the backdrop of persistently weak consumer demand and low rental inflation.

Sarb last month revised significantly lower its medium-term inflation outlook to average 4.7 percent for 2020, down from 5.1 percent.

Regular below-forecast inflation has enabled the central bank to ease monetary policy over the past six months.

The Sarb monetary policy committee lowered the repo rate by 0.25 percentage points in both July 2019 and January 2020, with suggestions of further easing in monetary policy later this year.

BUSINESS REPORT

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