Inflation stays in Bank’s target range

Consumer inflation remained within the Reserve Bank’s 3%-6% target range in May, with the consumer price index (CPI) ticking up to 5.4%, from 5.3% in April.

The CPI measures changes in the price of consumer goods and services purchased by households in urban areas.

The contribution of food and nonalcoholic beverages to inflation increased from 1.1 percentage points in April, to 1.2 percentage points in May, while transport rose from 0.7 percentage points in April, to 0.8 percentage points in May.

The transport index rose 5.2% from a year earlier, but within that, fuel prices were up 8% from a year earlier.

Food prices rose 7%, and prices of food and nonalcoholic beverages were up 6.9% from a year earlier.

This is slightly higher than in April, but well off 2016’s doubledigit peaks.

Busisiwe Radebe, a Nedbank economist, said inflation was expected to soften in June due to lower fuel prices. Inflation was also likely to remain below the Bank’s 6% upper target range for the rest of the year due to lower food price inflation. The biggest threat to the inflation outlook remained the volatile rand, which might taper the extent of the fall in prices.

In its monetary policy statement in May, the Bank said the rand remained “highly sensitive to unfolding domestic political uncertainty, as well as decisions by credit ratings agencies”.

Momentum economist Sanisha Packrisamy said the rand exchange rate and financial stability risks still posed a threat.

“Even though Momentum Investments projects inflation to reach close to 5.5% on average in 2017 and declining to around 5.0% in 2018, the above arguments are likely to limit the scope for rate cuts in 2017.”

This comes after Public Protector Busisiwe Mkhwebane recommended the Bank’s constitutional mandate be changed from protecting the value of the rand to the protection of citizens’ socioeconomic wellbeing.

Investec chief economist Annabel Bishop said the Bank achieved its mandate by limiting inflation to within the 3%-6% range through targeting inflation. “A high inflation environment, where inflation targeting is abandoned, would mean a rapid, likely double-digit, rise in the cost of living, which the poor would not be able to afford, and [they] would increasingly have to go without,” added Bishop.

In February 2016, inflation soared to a seven-year high of 7%, increasing the contribution of food and nonalcoholic beverages 8.6%.

Investment Solutions chief economist Lesiba Mothata said emerging markets such as SA historically had high inflation.

Without a monetary policy focus, inflation could rise to double digits and place consumers under strain.