SA in­fla­tion at low­est since Novem­ber of 2015

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

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.

Fore­casts

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.

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