SA inflation at lowest since November of 2015
SOUTH Africa’s inflation fell to its lowest since November 2015, raising hopes that the SA Reserve Bank (Sarb) would adopt an accommodative monetary stance to boost sluggish growth.
Data released yesterday by Statistics SA (Stats SA) showed that the consumer price index (CPI) dipped to 5.1 percent yearon-year in June, easing from the 5.4 percent recorded in May against the general consensus of 5.2 percent.
The bank will deliver its Monetary Policy Committee (MPC) decision today. On a month-to month basis, consumer prices increased 0.2 percent in June, after rising 0.3 percent in the previous month.
Africa economist at Capital Economics, John Ashbourne, said the latest activity data suggested that growth rebounded in the second quarter, giving room for accommodative monetary outlook to boost growth.
“This only strengthens our view that the South African Reserve Bank will cut rates further and faster than most expect, with the first cut coming at its meeting tomorrow (today),” Ashbourne said.
Sarb has insisted that the CPI inflation forecast would need to fall to the midpoint target range for twelve to twentyfour months to consider a rate cut. At its last MPC meeting in May, the bank kept its repo rate at 7 percent and the prime lending rate at 10.5 percent. Sarb governor Lesetja Kganyago said the longer-term inflation trajectory was “uncomfortably close to the upper end” of the 3 to 6 percent target range.
Sanisha Packirisamy, an economist at Momentum Investments, said she expected the MPC to lower its inflation and growth forecasts at upcoming meetings given a disappointing first quarter growth print and lower-than-anticipated inflation figures relative to the Sarb’s earlier forecasts.
“Interest rate cuts are likely to be deferred as rand risks in light of continued political and sovereign ratings uncertainty continue to provide an upside threat to the inflation trajectory,” Packirisamy said. “This remains the case particularly as inflation expectations are still uncomfortably anchored at the top end of the inflation-target band.”
Stats SA said food price inflation remained steady at 7 percent year-on-year, while meat price inflation increased 13 percent in June from 12.3 percent year-on- year in May.
The agency blamed the acceleration in meat prices to low base factors. It said the annual core inflation rate, which excludes the cost of food, non-alcoholic beverages, petrol and energy was steady at 4.8 percent in June, it’s the lowest rate since January 2013.
Macroeconomics statistics website Trading Economics said inflation rate in South Africa averaged 9.17 percent from 1968 until 2017, reaching an all time high of 20.70 percent in January of 1986 and a record low of 0.20 percent in January of 2004.
Kamilla Kaplan, an economist at Investec, said the MPC meeting was likely to lower its 5.7 percent inflation profile to 5.3 percent in this year and next year and perch it at 5.5 percent for 2019 as recent downside surprises in the CPI outcomes became incorporated.