Interest rate hikes predicted

THE consumer price index (CPI) rose as expected by 6% year on year last month, with economists expecting it to rise even further in the second half of the year and lead to more interest rate hikes.

Statistics South Africa figures showed that CPI was up 6% y/y after increasing 5.9% y/y in February as food‚ fuel and other administered costs weighed. CPI was up 1.3% between February and March.

Capital Economics Africa economist Shilan Shah said the effects of a weak rand and rising local food prices meant CPI was likely to accelerate further over the next six months or so.

“This should be enough to prompt the SARB [South African Reserve Bank] into further tightening‚ and an interest rate hike seems likely at its next MPC [monetary policy committee] meeting in May.”

Efficient Group economist Francois Stofberg said the company expected CPI to breach 6% in coming months, which would “trigger” a 50 basis point interest rate hike in the second half of the year. CPI is targeted within a 3%-6% range.

The food and non-alcoholic beverages sub index of CPI increased by 1.4% between February and March and rose to 7% year on year in March from 5.4% in February.

Sugar‚ sweets, desserts (3.7%); vegetables (3.3%); fruit (2.1%); milk‚ eggs, cheese (1.9%); oils, fats (1.7%); bread, cereals (1.2%); fish (1%); meat (0.8%); and cold beverages (0.7%) were among the food components that increased.

The alcoholic beverages and tobacco index increased by 2% between February and March and slowed to 5.8% y/y in March from 6.5% in February. The housing index increased by 0.9% between February and March mainly due to a 1.3% increase in actual rentals for housing and a 1.4% increase in owners’ equivalent rent. The annual rate increased to 5.6% last month from 5.5% in February.

The transport index rose by 1.6% between February and March mainly due to a 36c/litre petrol price rise. The annual rate decreased to 6.9% in March from 8% in February.

The education index rose by 8.7% between February and March. The annual rate decreased to 8.7% in March from 9% in February.

Core inflation‚ which strips out food‚ petrol and energy costs‚ also rose for the first time after six months of remaining unchanged. It rose 5.5% y/y from 5.3%.

BNP Paribas Cadiz economist Jeff Schultz said this level of core inflation would flag that second-round pressures stemming largely from a weaker rand were starting to creep into domestic prices. – BDlive

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