Rate cut unlikely after inflation ticks up to 5%

THE CONSUMER inflation rate rose for the first time in four months in August, adding to expectations that the Reserve Bank will keep its benchmark rate unchanged today.

Inflation accelerated to 5 percent from 4.9 percent in July, Statistics SA said on its website yesterday. The increase was in line with the median estimate in a survey of 20 economists. Prices rose 0.2 percent in the month.

Rising oil and food prices and a widening current account deficit are leaving the central bank less room to stimulate the economy and offset the impact of Europe’s debt crisis and a slowdown in growth in Asia. The bank’s monetary policy committee (MPC) cut the benchmark repo rate by half a percentage point to 5 percent on July 19.

“It’s a no-impact figure,” Elize Kruger, an economist at KADD Capital in Johannesburg, said. “Our view is monetary policy will be left unchanged. The risk of a spike in food prices in the rest of the year is getting a bit bigger. We haven’t seen any of the impact on higher maize prices coming through yet.”

The rand traded at R8.196 a dollar at 10.41am in Johannesburg, little changed from before the inflation data was released. Yields on 6.75 percent bonds due in March 2021 dropped 4 basis points to 6.65 percent.

Economic growth accelerated to an annualised 3.2 percent in the second quarter from 2.7 percent in the previous three months, the statistics office said in a release last month. A series of strikes by platinum and gold miners will probably curb growth for the remainder of the year.

The deficit on the current account, the broadest measure of trade in goods and services, unexpectedly widened to 6.4 percent of gross domestic product in the second quarter, from 4.9 percent in the previous three months, as demand for exports slumped.

Meanwhile, retail sales growth slowed in July as consumer confidence remained close to a four-year low on rising fuel and food prices.

Retail sales rose 4.2 percent from a year earlier at constant 2008 prices, down from a revised 8.6 percent year on year in June, Stats SA said on its website yesterday.

The July data was based on a new survey sample, it said.

The median estimate in a survey of 11 economists was 7.2 percent. Sales rose 0.1 percent from a month earlier.

Rising fuel and food prices were “an assault on the household balance sheet”, Colen Garrow, the chief economist at Meganomics, said. “We will get further slowdowns in the rate at which retail sales is growing.”

Consumer confidence stayed close to a 2008 low in the third quarter as higher food and fuel prices curbed spending, First National Bank and the Bureau for Economic Research said on Tuesday.

Reserve Bank governor Gill Marcus said on July 4 that the nation’s economic outlook had “deteriorated”.

The central bank surprised economists on July 19 by cutting the benchmark interest rate by half a percentage point to 5 percent to stimulate the economy as a debt crisis in Europe damped demand for manufactured exports.

Policymakers are expected to keep the benchmark rate at 5 percent today, according to 19 of the 20 economists surveyed.

The jobless rate in the second quarter was 24.9 percent, the highest of more than 60 nations tracked by Bloomberg.

Petrol prices rose 8.4 percent at the start of the month as oil surged. – Bloomberg