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Johannesburg - Consumer inflation ticked up to 5.0% year-on-year in August, in line with market expectations, from 4.9% in July, Statistics South Africa said on Wednesday.
On a month-on-month basis, inflation eased to 0.2% compared with 0.3% in July and against economists’ expectations that it would remain steady at 0.3%.
“It is in line with expectations, which to me indicates we haven’t had any surprises on food prices yet. So for now we are still waiting for the impact of higher maize to come through onto the food price basket," said Elize Kruger, economist at Kadd Capital.
She added: “On the day, good news is that it’s still a tame inflation outlook. In my view it should not really alter anything relating to this week’s Monetary Policy Committee meeting.
“I still think we are going to see rates unchanged, with inflation tame, and growth muddling along.”
Anisha Arora, emerging market analyst at 4Cast said while the headline rate has come off the 14-month lows of July, there is still a signal to the Monetary POlicy Committee (MPC) that inflation is on a downward trend, having returned to within the target band much earlier than it was expected in the first quarter.
“But in terms of tomorrows rate meeting we don’t expect the Sarb (South African Reserve Bank) will cut again as oil prices are once again emerging as an inflationary pressure with prices up 2.1% this month, while the unprocessed food component edged up slightly.”
“What it signals is that we probably saw a temporary bottom in the CPI of 4.9% in July given that food disinflation has now probably bottomed," said Ilke van Zyl of Absa Capital.
“We’ll be moving sideways and gradually up towards the end of this year, ending the year at about 5.2%. The 4.9% for July was definitely the lowest point for the next two quarters or so.”
Razia Khan, head of Africa Research at Standard Chartered said the latest stats shouldn't change anything for the Sarb tomorrow.
“On our part - we still see a relatively benign inflation outlook. The Sarb has already said in the past that it is unlikely to react to temporary supply-side driven inflation - we would need to see evidence of a potential second round effect, and that seems increasingly unlikely given the current growth environment.
“Nonetheless, there are good reasons why the Sarb should stay on hold (for now). The widening of the current account deficit, and the rise in household debt as a percent of disposable income are both reasons, in our view, to be cautious about stoking imbalances further.
“However, with the growth outlook as weak as it is, the risk of further rate easing will remain in place for some time, even though we think it will take further deterioration in the global environment to force the hand of the Sarb.”
The rand was weaker at R8.20/$ at 10:23 from R8.19 before the data was released at 10:00. The yield on the benchmark 2015 bond dipped to 5.4% from 5.41% before the data.
Inflation dipped to a surprised 14-month low of 4.9% in July, prompting the Sarb to cut interest rates for the first time in 20 months in July. The bank also cut its CPI forecast to a 4.9% low seen in the second quarter of 2013.
However, higher food and oil prices could change the moderating trend in inflation.
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On a month-on-month basis, inflation eased to 0.2% compared with 0.3% in July and against economists’ expectations that it would remain steady at 0.3%.
“It is in line with expectations, which to me indicates we haven’t had any surprises on food prices yet. So for now we are still waiting for the impact of higher maize to come through onto the food price basket," said Elize Kruger, economist at Kadd Capital.
She added: “On the day, good news is that it’s still a tame inflation outlook. In my view it should not really alter anything relating to this week’s Monetary Policy Committee meeting.
“I still think we are going to see rates unchanged, with inflation tame, and growth muddling along.”
Anisha Arora, emerging market analyst at 4Cast said while the headline rate has come off the 14-month lows of July, there is still a signal to the Monetary POlicy Committee (MPC) that inflation is on a downward trend, having returned to within the target band much earlier than it was expected in the first quarter.
“But in terms of tomorrows rate meeting we don’t expect the Sarb (South African Reserve Bank) will cut again as oil prices are once again emerging as an inflationary pressure with prices up 2.1% this month, while the unprocessed food component edged up slightly.”
“What it signals is that we probably saw a temporary bottom in the CPI of 4.9% in July given that food disinflation has now probably bottomed," said Ilke van Zyl of Absa Capital.
“We’ll be moving sideways and gradually up towards the end of this year, ending the year at about 5.2%. The 4.9% for July was definitely the lowest point for the next two quarters or so.”
Razia Khan, head of Africa Research at Standard Chartered said the latest stats shouldn't change anything for the Sarb tomorrow.
“On our part - we still see a relatively benign inflation outlook. The Sarb has already said in the past that it is unlikely to react to temporary supply-side driven inflation - we would need to see evidence of a potential second round effect, and that seems increasingly unlikely given the current growth environment.
“Nonetheless, there are good reasons why the Sarb should stay on hold (for now). The widening of the current account deficit, and the rise in household debt as a percent of disposable income are both reasons, in our view, to be cautious about stoking imbalances further.
“However, with the growth outlook as weak as it is, the risk of further rate easing will remain in place for some time, even though we think it will take further deterioration in the global environment to force the hand of the Sarb.”
The rand was weaker at R8.20/$ at 10:23 from R8.19 before the data was released at 10:00. The yield on the benchmark 2015 bond dipped to 5.4% from 5.41% before the data.
Inflation dipped to a surprised 14-month low of 4.9% in July, prompting the Sarb to cut interest rates for the first time in 20 months in July. The bank also cut its CPI forecast to a 4.9% low seen in the second quarter of 2013.
However, higher food and oil prices could change the moderating trend in inflation.
* Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.
