Johannesburg - A substantial slowdown in the rise of food prices translated into lower-than-expected inflation during December.
South Africa's consumer price index (CPI) increased 6.3% in December, compared to the same month one year ago, according to data released by Statistics SA on Wednesday. The figure was marginally below market forecasts for a 6.5% year-on-year (y/y) increase. However, it was higher than November's y/y increase of 5.8%, moving out of the Reserve Bank's 3% to 6% target band.
Still, the good news for consumers was that food price inflation slowed down from a 4% y/y increase in November to 2.7% in December. Food prices were rising at a rate of 16.1% y/y in January 2009.
Economists are also not too concerned about CPI's movement out of the target range.
"The sharp annual increase was largely due to base effects arising from the low petrol price established this time last year," said Nedbank economist Carmen Altenkirch.
Economist consensus, according to I-Net Bridge, is for CPI to remain outside the target band for the next two or three months.
"I foresee that January 2010 could be a similar figure [6.3%] and we could be back below 6% as soon as February 2010," said Elize Kruger, an economist at KADD Capital.
Eskom hike a 'significant threat'
Economists are split in two main camps on the inflation outlook for the second and third quarter of 2010, according to Jeff Gable from Absa Capital.
Some believe inflation will remain relatively contained through 2010, particularly if private-sector spending remains subdued.
"We retain our view that there is still scope for another rate cut - potentially in May," said ETM market analyst George Glynos.
On the flipside, Eskom tariff hikes pose a significant threat to prices. The power utility has requested a 35% price increase over three years to help fund its expansion programme, to be implemented from mid-2010.
The country's power regulator is debating the matter and will announce the actual size of Eskom's tariff increases in February. They are expected to have both a direct impact on inflation as well as second-round effects.
Reserve Bank governor Gill Marcus said on Tuesday the central bank was "extremely concerned" about the effect of the proposed tariff increases on the economy.
"Don't underestimate this threat to the inflation outlook," said Marcus, delivering the Reserve Bank's most recent stance on interest rates.
- Fin24.com