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Johannesburg - A surprise flirtation between the consumer price index (CPI) figure and the upper range of the SA Reserve Bank's (Sarb's) inflation target may catch the eye of the Monetary Policy Committee when it decides on interest rates in September.
Most experts predict the CPI figure for July - due to be released on Wednesday - will not be less than 6.5%, but agree that anything unexpected will likely be on the downside, bringing the CPI close to Sarb's target of 3% to 6%.
A consensus forecast by more than 10 economists anticipates consumer inflation to come in at 6.7% year-on-year for July, compared to 6.9% in June.
On Tuesday's Fin24.com's AM Stock Take podcast, Investment Solutions economist Chris Hart said there could be a chance of a surprise on the downside, because if one compares oil prices to this time last year, the difference may contribute.
At the time, oil was trading between $130 and $147 per barrel, compared to about $70/barrel in June 2009.
Macquarie's Gina Schoeman said: "If CPI comes in below 6% the Sarb may find room to cut once more in September, especially given a lacklustre economy at present and heavy unemployment." But inflation needs to come in below 6.2% to catch the Reserve Bank's attention for another rate cut and will send the shares of banks and retailers northward.
Inflationary knock-on effect
Absa economist Jeff Schultz agreed, saying there are still substantial upside risks to the inflation outlook, especially through the second-round inflationary effect from rising administered prices - for instance electricity - and service price inflation.
Nedbank economist Carmen Altenkirch concurred. "Over the month, [several] prices are expected to increase quite sharply," she said. "In fact, electricity will contribute about half of the monthly increase." Inflation could also be spurred on by higher fuel, insurance and funeral costs.
Hart said inflation has proved to be sticky on the downside, adding that SA's inflation was still much higher than in other parts of the world.
Investec economist Annabel Bishop said she doesn't expect any further significant monetary easing this year, unless the CPI enters its target range by September.
"If September's CPI comes out below 6%, Sarb will have to revise its inflation trajectory," Bishop said. "We continue to believe that the inflation target will be achieved this year, likely as early as September, allowing the governor [Tito Mboweni] to retire with his wish granted."
- Fin24.com
