Inflation: No rate cut yet, wait for 2009

2008-11-26 00:00

It is unlikely that the Reserve Bank will lower the interest rate at its next meeting in two weeks’ time, despite the fact that CPIX — inflation excluding interest rates on mortgage bonds — slowed to 12,4% last month, from 13% in September.

That is the view of several economists, following the release of consumer inflation data yesterday.

However, the latest figure significantly increases the probability of a February 2009 rate cut.

Although food inflation remains a major problem, the general consumer inflation outlook continues to improve.

Fuel prices have declined in recent months and consumers could be in for another significant cut next week.

The Consumer Price Index (CPI) or headline inflation rate was 12,1% last month, from 13,1% in September.

Pietermaritzburg’s CPI eased to 14,3% last month. The city’s CPI during September was 15,7% (August: 16,8%).

Durban’s headline inflation rate was 13,4% in October compared to 13,8% in September (August:14,6%).

Provincial CPI was 13,1% from 13,6% in September (August:14,2%).

Standard Bank economist Danelee van Dyk believes the Reserve Bank will keep the interest rate unchanged on December 11, due to the ongoing threat of the weak and volatile rand.

“The Reserve Bank might be concerned that a cut may have a disproportionate impact on the rand in thin markets over Christmas. The authorities may also be concerned that it might send the wrong message to households,” noted Nedbank’s group economic unit.

Efficient Group economist Doret Els agrees that the first rate cut will only be delivered in February 2009.

However, Professor Chris Harmse, chief economist at Dynamic Wealth, believes that the Reserve Bank may have sufficient motivation for an “early” reduction in the repo rate.

Harmse believes that several factors support this view:

• a possible peak in second-round inflation in September;

• the sharp slowdown in economic growth;

• interest rate cuts elsewhere in the globe;

• the slowdown in credit growth and money supply growth.

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