Consumer prices expected to rise further
Door closes on the Sarb cutting interest rates
SOUTH Africa’s inflation rate hit a three-month high in March on a surge in fuel prices, and consumer prices are expected to increase further in the coming months, closing the door on an interest rate cut this year.
Statistics South Africa (StatsSA) said the Consumer Price Index (CPI) accelerated to 4.5 percent year-on-year from 4.1 percent in February, although it was still within the SA Reserve Bank’s target of 3 to 6 percent.
Stats SA said prices increased faster mainly for transport, as fuel costs rose.
PricewaterhouseCoopers Africa chief economist Lullu Krugel said the year-on-year increase in headline inflation was associated mainly with increases in the cost of transport and education.
“The higher fuel price was the main contributor to private transport operation costs, increasing 4.3 percent month-on-month and 8 percent year-on-year in March. Transport costs 6.4 percent more than in March 2018. Average education costs also rose by 6.7 percent,” Krugel said.
Petrol rose 7.7 percent year-on-year in March on higher global crude prices and a weaker rand.
The spike carried over to this month, with the price of 95 octane ULP and LRP petrol increasing by R1.31 a litre in Gauteng and by R1.26 a litre at the coast from April 3.
On Monday, the Automobile Association warned that consumers were in for another steep hike in fuel prices next month, with an increase of 56 cents on the cards.
Luigi Marinus, portfolio manager at PPS Investments, said the upward inflation movement suggested that the Sarb could be forced to hike interest rates.
“The Reserve Bank governor (Lesetja Kganyago) has recently emphasised the goal of fixing the inflation expectation at 4.5 percent. While this latest print at 4.5 percent may be in line with this expectation, the positive trajectory is somewhat of a concern,” Marinus said.
StatsSA said the annual core inflation rate, which excludes the cost of food, non-alcoholic beverages, fuel and energy, stood at 4.4 percent in February.
Investec economist Kamilla Kaplan said CPI was expected to drift higher over the coming months, and average 4.9 percent year-on-year in 2019.
“In view of this, and that CPI inflation is set to rise back towards the upper end of the target range from 2020, the prospect for an interest rate cut is diminished,” Kaplan said.
Capital Economics said it expected headline inflation to stabilise below the 4.5 percent midpoint of the Sarb’s target range, averaging 4.3 percent year-on-year over the remaining nine months of the year.
“With growth weak, and inflation fixed below the 4.5 percent midpoint, we expect the key policy rate will be cut from 6.75 percent to 6.5 in the last quarter of 2019,” Capital Economics economist John Ashbourne said.