Fin24

Consumer inflation keeps on rising

2011-07-20 10:16

Johannesburg - The increase in South Africa's consumer price index (CPI), which is used by the SA Reserve Bank (Sarb) for its inflation target, was 5.0% year on year (y/y) in June from 4.6% y/y in May, Statistics SA said on Wednesday.

The CPI was expected to tick up to 5.0% y/y in June, according to a survey of leading economists by I-Net Bridge. Forecasts among the eight economists ranged from 4.77% to 5.1%.

CPI was 0.4% month-on-month (m/m) from 0.5% in May.

"I think the trend for inflation is higher; it will breach the target and a rate hike remains a risk. I’m thinking of changing my rate increase view from Q4 this year to Q1 next year, but I’m waiting for retail sales data and I also want to see the MPC (Monetary Policy Committee) statement tommorrow - but the market is changing its view a quarter out," said Colen Garrow, economist at Brait.

Inflation has edged up since hitting a five-year low of 3.2% in September last year, partly driven by rising food and fuel prices.

The central bank in May raised its inflation forecast and said inflation was likely to pierce its 3% to 6% target band briefly, peaking at 6.3% in the first quarter of 2012.

Sarb said it would not hesitate to act on signs that inflation was consistently above the target band, although it would not raise interest rates only because of pressures arising from higher oil and food prices.

The central bank has left its repo rate unchanged at 5.5% this year after reducing it by 650 basis points in the two years to December 2010, and some analysts expect the tightening cycle to begin by the end of this year.

Sarb has also been concerned about high wage increases. Unions have demanded double-digit raises and some sectors have been experiencing strikes for higher wages.

 

Comments
  • Realist - 2011-07-20 10:28

    Hands up who thinks inflation is really around 5%....realistically closer 25% unless you live on mielie meal.

      march - 2011-07-20 16:23

      Explain how do you get to 25%?

  • Hugh - 2011-07-20 11:11

    For the greater part inflation is being driven by the government and parastatals. A whole range of increases in taxes from fuel,carbon, electricity increases,property rates,and road tolls [new and old ] is the real cause of the inflation.

  • gcr - 2011-07-20 11:46

    The way Stats SA collects their data is highly suspect as they repeatedly go back to the same shops every month to collect data and they have less than a 100 collectors of data - I think their sample size is far too small and they are placing emphasise on items which don't show large variances. If you factor in clothing, meat products, municipal fees, Eskom and petrol the story would probably reflect a figure closer to 8% for inflation. Also from reports people have not been able to reduce their debt meaningfully which indicates that CPI is merely eating up the funds that could have been redirected to debt reduction

      Badger - 2011-07-20 14:41

      I Agree, cause in Mar/Apr and May this year they said retail sales were down 3 consecutive months of between 7%-9% ???

  • Jack McRip - 2011-07-20 12:57

    CPI targeting is Racist... Fix the Repo Rate @ 0% and leave it there. Should cause a big initial CPI spike that should sort itself out over time.

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