Bank to act soon to arrest inflation

THE RESERVE Bank was likely to move sooner than anticipated in an effort to curb rising inflation by hiking interest rates at its next monetary policy committee (MPC) meeting next month, according to economists.

At its last meeting in May, the Reserve Bank said it could change its monetary stance because of rising risks to the inflation outlook and a likely rate hike in the US by year-end.

Consumer price index (CPI) inflation rose marginally to 4.6 percent in May, the highest level this year as the rand weakened and the effect of lower oil prices dissipated.

On the other hand, retail sales in April grew by an annualised 3.4 percent, according to data released by Statistics SA yesterday. The rand fell 0.6 percent against the dollar to R12.4440 at 11.30am immediately after the release of the CPI inflation data.

John Cairns, a currency strategist at Rand Merchant Bank, said the local currency was certainly trading with extreme sensitivity to clues from the US Federal Reserve meeting last night.

Headline consumer inflation rose to 4.6 percent from 4.5 percent in April. On a month-tomonth basis, prices were up 0.3 percent in May compared with 0.9 percent in April.

Core inflation, which excludes food, electricity and petrol, quickened to 5.7 percent year on year from 5.6 percent.

Dennis Dykes and Busisiwe Radebe, economists at Nedbank, said inflation reached its trough in February at 3.9 percent and was on an upward trend that would have it end the year at, or just below, the Reserve Bank’s 6 percent upper target range.

Higher oil prices