Johannesburg - The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank (Sarb) for its inflation target, was up 6.3% year-on-year (y/y) in December from 5.8% y/y in November, Statistics South Africa (Stats SA) said on Wednesday.
It was also disclosed that annual CPI in 2009 struck 7.1% from 11.5% in 2008.
CPI was at 0.3% month-on-month (m/m) after registering 0.0% m/m in both October and November.
It was expected to have registered 6.5% y/y, according to a survey of 11 leading economists by I-Net Bridge. Forecasts among the economists ranged from 6.0% to 6.5%.
Wednesday's print breaks the two-month period in which CPI slipped back below the 6% radar level.
Economists said the figure was expected to be outside the target band.
Nedbank economist Carmen Altenkirch said: "Inflation came in below market expectations at 6.3%, up from 5.8% in
November.
"The sharp annual increase was largely due to base effects arising from the low petrol price established this time last year. The m/m increase was mainly due to the higher owner's equivalent rent, which was surveyed in December.
"Inflation is expected to fall back below 6% by March, remaining within the target band during 2010.
"The risk to inflation remains on the cost-push side, with the threat of Eskom's price hikes the key danger.
"The strength of the rand combined with weak domestic demand were the two main factors helping to push inflation, particularly of durable and semi-durable goods, lower during the latter half of 2009.
"The trend is expected to continue this year, particularly if the rand remains around current levels."
Annabel Bishop, economist at Investec, said, "CPI inflation left the target range in December, as expected, due to
seasonal and statistical base effects. January's outcome is expected at 6.4% y/y.
"Today's [Wednesday's] outcome does not change our view either in terms of the future path of interest rates or inflation. With the demand side of the economy and labour market still in recession and only likely to emerge from it in early 2010, there is little chance of any interest rate hikes before Q4.10.
"Even this monetary tightening at the end of next year will be heavily dependent on economic performance and may well be delayed until 2011.
"The move forecast in the fourth quarter of 2010 is based on the belief that monetary policy will be returned to a more neutral stance, should the strengthening economy warrant it.
"Electricity tariff increases of 35% will keep inflation CPI inflation out of target in 2011 from when the tariff hikes are instituted.
"While the chance of a 50 basis point cut at the March MPC [Monetary Policy Committee meeting] still remains, it seems that the Sarb will keep a close focus on inflation, despite CPI inflation being largely structural (driven by administered prices) in nature."
ETM market analyst George Glynos said: "We've held the view for some time that while money supply growth is as soft
as it is and private sector credit extension is contracting, then inflation might very well surprise to the downside and we still retain our view that there is still scope for another rate cut - potentially in May."
Economists.co.za's Mike Schüssler said the figure was not bad, and although beyond the target band, it was expected.
"What the figure shows is that the demand side of the
economy is still under pressure. CPI is probably going to remain outside the band for the next four to five months," he said.
- I-Net Bridge