Motorists felt some pain as the price of inland 95-octane petrol climbed from R13.40 a litre in June to R15.12 a litre in July, while diesel jumped from R13.13 to R14.62.
Motorists felt some pain as the price of inland 95-octane petrol climbed from R13.40 a litre in June to R15.12 a litre in July, while diesel jumped from R13.13 to R14.62.

SARB poised to keep interest rates on hold as inflation quickens

By Siphelele Dludla Time of article published Aug 27, 2020

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JOHANNESBURG – The South African Reserve Bank (SARB) is expected to keep interest rates on hold in the fourth quarter, despite an uptick in fuel prices and municipal tariffs pushing inflation to a four-month high in July.

Statistics South Africa (StatsSA) said on Wednesday that inflation quickened to 3.2 percent year on year, from 2.2 percent in June as lockdown restrictions continued to ease.

StatsSA said the consumer price index (CPI) inched up 1.3 percent month on month in July – the biggest monthly rise since February 2016, when the rate was 1.4 percent.

It said the monthly move in July was driven largely by fuel prices and municipal tariffs.

Motorists felt some pain as the price of inland 95-octane petrol climbed from R13.40 a litre in June to R15.12 a litre in July, while diesel jumped from R13.13 to R14.62.

“Despite these increases, fuel was still 6.2 percent cheaper this July than it was in the same month last year,” StatsSA said.

Last month, SARB reduced the repo rate by 25 basis points, taking it to 3.5 percent a year, and said it had scope to provide further monetary policy easing with another repo rate cut in the fourth quarter.

The central bank said the overall risks appeared to be balanced, as local food price inflation was expected to stay contained.

PricewaterhouseCoopers (PwC) chief economist Lullu Krugel said there was little concern about inflation in the country’s economic outlook.

Krugel said the second-quarter economic growth figures could deepen the SARB’s 2020 recession forecast and make room for more monetary policy easing. “PwC expects inflation to average 3.6 percent this year. The large recession – our baseline scenario sees the economy shrinking by 10.4 percent in 2020 – will keep price increases limited,” Krugel said.

“PwC sees room for a little more monetary policy easing from the SARB – there is currently not much room left to further open the taps.”

Electricity tariffs increased 6.3 percent in July, water tariffs rose by 9.9 percent, and municipal rates went up by 3.5 percent.

The annual food and non-alcoholic beverages inflation rate was 4.3 percent, while bread and cereal inflation was 2.8 percent, much lower than the 7.9 percent recorded in July 2019.

PPS Investments’ Luigi Marinus said it has been hard to see where inflation came from when labour was under pressure and general demand had been low.

“This most recent inflation print reminds us though, that inflation can move sharply, especially when coming off a low base,” Marinus said.

“In terms of the size of the increase, inflation remains low and, while it is contained below the midpoint of the target band, there remains scope for the SARB to continue to provide relief by further decreasing interest rates.”

BUSINESS REPORT

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