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Consumer inflation keeps on rising

Jul 20 2011 10:16
I-Net Bridge & Reuters

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.

inflation  |  sa economy


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