Rate hike unlikely as CPI drops

Reserve Bank expected to keep rates on hold

CONSUMER inflation slowed to 5.9 percent year on year in August from 6 percent in July, adding weight to expectations that the SA Reserve Bank will today decide to keep interest rates on hold.

Data from Statistics SA yesterday showed that the consumer price index (CPI) had dipped into the Reserve Bank’s inflation target range of 3 to 6 percent for the first time this year and decreased by 0.1 percent month on month.

Stats SA said core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, remained unchanged at 5.7 percent year on year.

On a month-on-month basis, core inflation slowed to 0.2 percent from 0.6 percent.

The agency said the major contributors to the drop in the CPI were food and non-alcoholic beverages, housing and utilities, miscellaneous goods and services, recreation and culture, transport and alcoholic beverages and tobacco.

It said, on a month-onmonth basis, the transport contribution decreased by 2.2 percent mainly because of the 99 cents a litre decrease in the petrol price.

Fuel price Petrol decreased mainly as a result of a stronger rand exchange rate and lower international fuel prices.

At its May and July meetings, the Reserve Bank’s monetary policy committee (MPC) left interest rates unchanged at 7 percent.

Investec chief economist Annabel Bishop said the Reserve Bank had alluded to the likelihood of interest rate hikes, “but… on balance this is more likely in November, if not 2017 rather than at the September 2016 (MPC) meeting”.

Efficient Group economist Francois Stofberg said the deceleration in CPI could prompt the Reserve Bank to keep interest rates on hold. He said while the inflation fell within the target range, the Reserve Bank could still be more concerned with medium-term inflation expectations.

“But even here, rates have been forecast to be well within their target range,” Stofberg said.

In a note yesterday, KPMG senior economist Christie

mainly because of a 5.1 percent increase in month-on-month prices of sugar, sweets and desserts, as well as a 2 percent increase in month-on-month prices of bread and cereals.

Delay hike “While we expect the alleviated price pressures to be temporary of nature, this should provide the Reserve Bank the necessary justification to once again to delay its interest rate hiking cycle at this week’s meeting,” Spangenberg said.

“However, base effects are set to see CPI inflation rise in coming months, with additional upward risk stemming from depreciation of the rand and the possibility of a recovery in oil prices.

“As a result, we maintain our baseline scenario for an interest rate increase of 25 basis points (in the second half of this year),” he said.

Meanwhile, Stats SA also announced that it would make changes to the CPI basket of goods and services next year.

“Each product in CPI has a weight to reflect its relative importance,” the agency said.