December fuel hike expected to lift inflation - analyst

Cape Town –  Inflation data for December is expected to be slightly higher than that recorded for November, mainly due to the fuel hike, said an analyst.

According to an economic update released on Friday by FNB chief economist Mamello Matikinca, Statistic South Africa’s (Stats SA's) inflation data for December is expected to be 4.9%. This is higher than the 4.6% reported for November. The data will be released on Wednesday.

“Having printed at 4.6% year-on-year in November, we expect inflation to lift modestly to 4.9% in December on the back of higher fuel prices in the month, after which there will again be a moderation in January,” she said.

Matikinca said that on the food inflation front, meat prices may have peaked. “Moreover, the granting of a 5.2% electricity tariff hike to Eskom, as opposed to the requested 20%, will also keep inflation in check this year.”

Following a 4.5% “trough” in March, inflation is expected to lift gradually from April. Both FNB and the Reserve Bank expect inflation to average 4.9% for 2018.

In a report on the interest rate outlook released last week, Investec chief economist Annabel Bishop shared expectations for inflation to fall further during the first quarter of 2018. She expects inflation to pick up in the second quarter of the year. 

Last week, the monetary policy committee kept rates unchanged at 6.75%, at the first meeting for the year.

During his address Reserve Bank governor Lesetja Kganygao explained that the main drivers of a more favourable inflation forecast were the stronger exchange rate and a lower electricity price assumption after a 5.23% tariff increase was granted by the energy regulator.

However, Matikinca warned that this tariff increase could be challenged by Eskom.

Eskom previously told Fin24 that it will consider the reasons given by the National Energy regulator of South Africa for the 5.23% hike, before deciding on further action.

Other risks to inflation include the rising oil price, the national budget to be announced in February and possibly a sovereign credit ratings downgrade by Moody’s in March, Kganyago said in his address. 


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