Consumer prices in SA surprise on downside
Market expectations were of a 4.6 percent increase.
Annual core inflation rate, which excludes cost of food, non-alcoholic beverages, fuel and energy, slowed to 4.1 percent from 4.4 percent, the lowest core inflation since March 2018, attributed to low food price growth which countered petrol and diesel price hikes.
Portfolio manager at PPS Investments Luigi Marinus said although inflation remained contained a rate cut was unlikely.
“At a time when South Africa is experiencing a disappointing economic growth rate, a high level of unemployment and inflation that appears to be contained, consumers could feel justified in expecting a rate cut at the Monetary Policy Committee (MPC) meeting,” Marinus said.
In April the MPC reiterated its preference for the inflation to be closer to the midpoint of 3 percent to 6 percent target range. The committee will today announce its interest rate decision, with the markets anticipating that it would keep the benchmark repo rate steady at 6.75 percent.
Emerging markets economist at Capital Economics Virág Fórizs said that policymakers were more likely to cut rates later this year.
“With weak growth and inflation fixed below the 4.5 percent target midpoint, we expect that the key policy rate will be cut from 6.75 percent to 6.50 percent in the last quarter of 2019,” Fórizs said.
The Organisation for Economic Co-operation and Development (OECD) this week said rising food and electricity prices put moderate upward pressure on inflation.
The OECD further said if inflation expectations continue to be moderate, Sarb could consider slightly increasing the degree of monetary accommodation to support growth. FNB economist Matlhodi Matsei said softer headline inflation was due to base effects from 2018 value added tax (VAT) increases outweighing higher petrol prices.
“As was widely expected, upward pressure on headline inflation came from transport CPI, which accelerated to 7.4 percent year-on-year (6.4 percent in March) and added 1.1 percentage points. The R1.31 cents a litre increase in the domestic petrol price in April was the key driver for this acceleration,” Matsei said.
“Notwithstanding, inflationary pressures were mostly tilted to the downside during the month. Although this continues to reflect suppressed domestic demand, it should also be noted that base effects from last year’s one percentage point increase in the VAT rate also added meaningfully to the downward pressure.”
BUSINESS REPORT
Source: iol.co.za
