Inflation set for new record high

CPIX - consumer inflation excluding mortgage costs - has clung stubbornly above the top end of the Reserve Bank's 3%-6% target range, prompting policymakers to lift official interest rates by a total of 500 basis points since June 2006.

But the bank's monetary policy committee left its repo rate unchanged at 12% last week, partly due to concerns the economy was showing signs of strain from the monetary tightening to date.

A Reuters poll of 16 economists found that CPIX was expected to accelerate to 12.9% year-on-year in July, surpassing June's record high of 11.6%.

"CPIX for July should begin to reflect the steep rise in electricity prices, as this will have been included in the survey," said Razia Khan, head of regional research for Africa at Standard Chartered in London.

"We expect that CPIX will continue to rise, until the new inflation basket is introduced in Jan 2009," Khan added, alluding to a re-weighted price basket that Statistics South Africa will implement next year.

South Africa's energy regulator in June agreed an average 27.5% electricity price increase for 2008/09, about half of what state power utility Eskom had asked for.

Eskom has struggled to meet demand for power in the region's biggest economy, as an ageing infrastructure constrains its generating capacity.

Key driver of growth

Economists expected producer price inflation to jump to 17.5%4 from 16.8% in June, signalling there would likely be more pressure on the consumer number further down the line.

The Reuters survey also showed that private sector credit growth was forecast to slow to 19.5% year-on-year in July from 20.28% the previous month.

"The household component (of the credit number) is particularly important as consumers try and smooth their consumption across the inflation cycle despite higher rates," said Peter Attard Montalto, a London-based emerging market economist at Lehman Brothers.

"We look for still robust growth there of 14.5% year-on-year," he said.

Forecasts for the trade balance - generally difficult to predict because of its volatility - ranged from a shortfall of R6.5bn to R1.5bn. This compares with a negligible trade gap of R180m in June, due to an increase in precious metal exports.

"South Africa's trade figures have been remarkably benign in recent months (but) with large imports, such as oil, typically 'lumpy', this may be about to change," said Standard Chartered's Khan. "We expect a larger deficit this month."