Now you too can be an expert
Forecast 6,3% CPIX for April
“OUR INFLATION RATE for April will be more than 6%, and the Reserve Bank’s Monetary Policy Committee (MPC) will have to raise interest rates by at least 0,5% after its meeting on 6/7 June. That will push prime overdraft rates up to 13%/year.”
Yes, it’s not at all difficult to predict how the inflation rate will behave over the next few months. Just watch the prices of certain household items that are bought every day, understand a few basic tables and learn some simple arithmetic that can easily be done on a calculator.
Consumers will know that very little of last month’s drop in the meat price worked its way through to the butchery. This fall is in any case starting to look like a sevenday wonder now that farm-gate meat prices have again risen sharply over the past few days.
The second place to look is the stats pages in newspapers and magazines, where it’s shown that the average under-recovery on petrol to 12 March was 67,28c/litre. This figure tells us that on the first Wednesday in April the fuel price could easily increase by 50c/litre or more, bringing us back to R6,50/litre in Gauteng.
Meat and petrol together make up 12% of the weight of the inflation basket.
After the heat wave of the past four weeks or so and the persistent drought that refuses to ease off – in any case it’s now too late for any rain for this season – the prices of agricultural products, in addition to the expensive meat, are showing an inexorable rise, leading to an uncomfortable feeling where prices are concerned.
The rand has weakened by more than 20% against the euro over the past year, and the fact that most of our trade is done in this currency is a sign that pressure is increasing on the prices of nearly all products in the consumer’s monthly household basket.
Knowing all this, it’s easy to sound like an economist and to predict where the inflation rate is heading. Focus on the CPIX – that’s the inflation rate without the effect of mortgage bond interest rates – which is the one the Reserve Bank wants to keep between 3% and 6%.
The inflation rate for January was 5,3%, and after its February meeting, the MPC announced boldly that the figure wouldn’t exceed 6% this year. That was before the heat wave. The ordinary inflation rate – some people use the dreadful term headline inflation – was already 6% in January.
The table is from Stats SA and is very handy for the DIY economist. It shows the CPIX index over the past two years, as well as the monthly increase on an annual basis. In January, the index was 145,0, compared with 137,7 in January last year. That’s an increase of 5,3%, and at least just below the 6% upper limit of the inflation target.
Consumers will recall that things didn’t go too badly in February. (The inflation rate, incidentally, is only measured over the first seven days of every month.) The petrol price fell, though meat was already extremely expensive, and the first signs of the heat wave actually brought vegetable prices down.
Now the economist must look at the possible increase on a monthly basis. Between January 2007 (index 145) and December 2006 (index 143,5), prices rose by a whole 1%. When multiplied by 12 it gives an inflation rate of 12% for the year. Luckily prices don’t increase so much every month, and it looks realistic to guess that February’s increase from January will only be about 0,6%. That brings the index for February to 145,9, or about 5,7% more than the 138 of February last year. Now we’re getting close to the upper target of 6%.
In March we already know that the fuel price has increased and that the heat wave and the drought in the northern parts of the country have caused a lot of harm. It’s not unreasonable to guess that the prices in the first seven days of March could have risen by as much as 0,7% over February’s figures. That pushes the index for March up to 146,9, which is a whole 5,98% up on the 138,6 of March last year. So it’s still not 6%, but only by the skin of your teeth.
It isn’t unreasonable to predict now that in April the prices – of everything from petrol to carrots – will be 0,8%, or even as much as 1%, higher than in March. That pushes the index of our basket of consumer goods up to at least 148 in April, and there it is – 6,3% up on the 139,2 of April last year. The figure will be released by Stats SA on 25 May, and the wise men of the MPC meet again on 6 and 7 June. Any guesses what they will do with the interest rate?