CPIX firm at 6.4%

“This doesn't really sound like a major surprise at all,” said senior economist at Absa Bank Chris Hart, speaking to BuaNews on Wednesday, 25 July.

Reacting to the figures released by Statistics South Africa (StatsSA) Wednesday, Hart said, “We can expect to see the CPIX above the 6% target band for a couple of months still.

“Only in about September or October might we begin to see the figure go back under the inflation target band.”

Government has set an inflation target band of between 3 and 6%.

The CPIX is the annual percentage change in the CPI excluding bond interest rates, for the historical metropolitan and other urban areas.

The annual increase of 6.4% in the CPIX, which was the same as the corresponding annual rate of 6.4% for May 2007, was mainly due to rising food, transport, medical care and fuel and power costs.

Hart, however, believes, “If we continue to see the type of developments regarding the strengthening rand and lowering oil price as we have over the last 48 hours, then fuel price cuts are on the way.”

If the rand holds firm against the dollar, and the oil price remains steady, “We can expect a series of fuel price cuts in the beginning of August, September and maybe October.”

He said the strengthening rand and its impact on investment, is basically a win-win situation.

“Inflation is usually a sign that foreign investment is retracting from local markets,” and whilst goods then become more expensive with the strengthening currency, a stable and growing economy attracts investors, said Hart.

Agreeing with him, managing director of Econometrix Treasury, George Glynos, told BuaNews: “We're expecting [fuel price cuts] around the 10 to 12 cent mark to happen in the first week of August.”

With regard to whether the National Credit Act (NCA), introduced on 1 June of this year, would have an impact on inflation figures, Glynos said: “As soon as the NCA starts to impact on money supply figures then we'll start to see a decrease in inflation.

“It will mostly likely only start to have an affect in about 12 months.”

Glynos said what is ideal is if a balance can be achieved between strengthening the rand to curb inflation and keeping production costs at a reasonable level for producers.

The interest rate was increased from 9 to 9.5% at the last meeting of the Monetary Policy Committee (MPC) in order to curb rampant consumer credit spending.

The MPC, who are set to meet again in August, are likely to hike interest rates by another 50 basis points believe analysts.

Article published courtesy of BuaNews