Food inflation drop expected
CONSUMER inflation slowed in March with a drop in food prices, but economists say interest rate cuts are unlikely until inflation falls back into the Reserve Bank’s target band of 3% to 6%.
The consumer price index (CPI) rose 6.1% year-on-year after a 6.3% increase in February following the dip in food inflation.
The food and nonalcoholic beverages index increased 8.7% after rising 9.9% in February.
Food inflation is moderating because the drought is dissipating and the rand is comparatively stronger.
MMI Investments and Savings economist Sanisha Packirisamy expects a further drop in food inflation in coming months.
Improved weather conditions boded well for bread and cereal prices, while next year’s maize harvest was set to nearly double compared with last year, which would mean lower grain prices.
“Global food prices are more or less in line with where they were a year ago,” Packirisamy said.
“However, translated into rand terms, food prices are around 9% lower than the corresponding period last year, providing an additional tailwind for food disinflation this year.”
Disinflation would be partly offset by a continued rise in meat prices, which increased 9.9% year-on-year.
The bank’s April 2017 monetary policy review, released last week, said herd rebuilding was driving up beef prices.
FNB senior economist Jason Muscat said: “Overall, the inflation profile remains uncomfortably high and expectations of a faster pace of easing may have to be deferred slightly given recent rand volatility in the wake of the cabinet reshuffle and ratings downgrade.
“There seems little doubt now that interest rate cuts … are unlikely to materialise this year.”
Chief market analyst at Xtrade Paul Sirani said: “While the Reserve Bank has been eyeing an interest-rate cut to help stimulate the economy, we’re unlikely to see a move until inflation comes down further.”
London-based Capital Economics economist John Ashbourne disagreed, saying the slowing inflation rate could result in an interest rate cut. — TMG