What will affect inflation outlook?

2009-06-25 00:00

CONSUMER inflation in Pietermaritzburg appears to have stabilised and is now in line with the national Consumer Price Index (CPI), which declined to eight percent year on year in May.

According to the latest data from Statistics SA, CPI in Pietermaritzburg cooled to 8,4% in May. This is a significant improvement from 16,8% in August 2008. National CPI in April came in at 8,4% (y-y).

According to many experts, the data bode well for South Africans, who are no doubt hoping for a further 50 basis point interest rate cut. The Monetary Policy Committee (MPC) of the Reserve Bank announces its decision after 3 pm today.

The move will lower the prime interest rate to 10,5%.

However, some experts warn that this could be the final rate cut for some time, given the fact that consumer inflation remains “stubbornly high”.

Efficient Group economist Fanie Joubert warned that the incentive to save is being undermined as inflation is not falling as rapidly as the interest rate.

“The real interest rate [repo rate minus CPI] is now in negative territory, assuming [that] a consumer will be able to get a deposit rate equal to the repo rate as the average 12-month fixed deposit rate, using 10 leading banks in South Africa, was 7,2%. This limits the scope the MPC have to further rate decreases,” Joubert said.

Nedbank’s Group Economic Unit is more hopeful, noting that the MPC will focus on the recessionary conditions and the medium-term inflation outlook.

“We still forecast … the prime rate falling to 10% by September,” Nedbank said.

Increases in the prices of food, cars and household goods prevented a more rapid decline in consumer inflation in May.

Food and non-alcoholic beverages rose 12,3% (y-y), housing costs rose eight percent (y-y) and maintenance costs rose 15,1% (y-y), Joubert said.

Senior economist at Dynamic Wealth, Johan van Tonder, said a lack of competition in the South African economy is the main reason for the stubbornly high inflation rate.

“Look at the demand for durable goods, which is reducing drastically. Notwithstanding that drop in demand, the latest inflation rate for durable goods is around five percent,”he said.


ECONOMISTS believe that several categories of products and services within the inflation basket remain a problem for consumers.

These include:

•Food prices, which remain robust (with the exception of a decline in February 2009). They are unlikely to soften over the next few months.

•The rand.

•Administered prices, including electricity, water, other municipal tariffs — and property taxes and levies.

•Services inflation.

•Wage costs.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.