Inflation rises slightly in August and likely to stay up in short term
Economy / 19 September 2019, 08:30am / Siphelele Dludla
JOHANNESBURG – Inflation ticked up slightly in August and is likely to remain elevated in the short term, as Saudi Arabia says crude oil output could be restored at the end of the month.
However, economists expect inflation to remain within the 4.5 percent year-on-year midpoint target range of the SA Reserve Bank (Sarb).
The central bank will announce its decision on the repurchase rate today.
Data from Statistics South Africa yesterday showed that headline consumer price inflation was at 4.3 percent year on year at the end of August, up from 4 percent in July.
The Consumer Price Index (CPI) measures the rate of change in the price for a fixed basket of goods and services, and serves as the indicator for general price inflation in the country.
The modest 0.3 percent uptick in inflation was mainly driven by food and non-alcoholic beverages, housing and utilities, and miscellaneous goods and services, as rising prices persist.
This marked the ninth consecutive month that year-on-year inflation was at or below the midpoint of the Sarb’s target band.
Investec economist Annabel Bishop said risks from higher food price inflation, due to the poor weather conditions, were apparent for South Africa’s inflation outlook. “CPI inflation is likely to remain between 4 percent and 4.5 percent year on year for the rest of this year, with 4.2 percent year on year for 2019,” Bishop said.
Economists say the month-on-month uptick in inflation and the hike in Brent crude price arising from the Saudi attacks made it unlikely that the Sarb’s Monetary Policy Committee (MPC) will change interest rates.
PricewaterhouseCoopers’ chief economists Lullu Krugel and Dr Christie Viljoen said: “The central bank is unlikely to risk cutting interest rates this month. Policymakers will also reiterate that easier monetary policy is not a panacea for the country’s low economic growth trajectory.”
Sarb has warned that it expects inflation to accelerate during late 2019 and the first half of 2020.
A portfolio manager at PPS Investments, Luigi Marinus, said the important question facing the MPC in its interest rate decision today was the trajectory of inflation. “It has been nearly two-and-a-half years since inflation has breached the upper end of the target band and has been at or below the midpoint for the whole of 2019 thus far, but the repo rate is at the same level as one year ago,” Marinus said.
The weekend drone attacks in Saudi Arabia have implications for the economy and the price of fuel, as most of South Africa’s oil imports came from Saudi Arabia (42percent) during the first quarter of 2019.
After initially surging at the start of trading this week, Brent crude has eased back to $64 (R942.25) a barrel, and remains below its 12-month high of $86.29 a barrel seen last October.
Momentum Investments economist Sanisha Packirisamy said South Africa’s reliance on Saudi Arabian oil imports could negatively affect the price of fuel.