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JOHANNESBURG – The Steel and Engineering Industries Federation of Southern Africa (Seifsa) welcomes the easing of the Consumer Price Index (CPI), with the numbers moving further away from the upper band of the South African Reserve Bank’s (Sarb’s) inflation target.

According to Statistics South Africa (Stats SA) data, the annual consumer price inflation eased from 5.2 percent in November 2018 to 4.5 percent in December 2018. The month-on-month movement in the CPI was 0.2 percent.

Speaking after the release of the figures, Seifsa economist Marique Kruger said the slowdown in the prices of goods and services was a welcome relief for embattled domestic consumers who have been facing a number of headwinds, including tight credit conditions and the task of keeping their credit accounts in good standing.

“The lower CPI augurs well for over-indebted consumers as it will generally reduce pressure, thus enabling households to afford basic needs, while also enhancing their ability to service their debt obligations,” said Kruger.

She added that increased spending against the backdrop of lower inflation generally augurs well for businesses in the manufacturing sector, including its Metals and Engineering (M&E) cluster of industries. This is the case especially given that demand for M&E intermediate products is usually driven by demand for final consumer goods produced.

Investec economist Kamilla Kaplan, however, said risks to the inflation outlook remain to the upside, on possible rand depreciation and above inflationary increases in administered prices, particularly electricity tariffs. “Moreover, food prices could come under renewed upside price pressures owing to dry weather conditions that could adversely affect maize production in 2019.”

PPS Investments portfolio manager Luigi Marinus said in the most recent Monetary Policy Committee (MPC) statement, Sarb governor Lesetja Kganyago alluded to targeting the mid-point of the inflation target band, as well as forecast inflation to be more subdued in 2019. “This latest inflation print should satisfy the MPC that their expectation of a benign rate hiking cycle may be justified.”

BUSINESS REPORT ONLINE