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Cape Town - The higher than expected consumer price index of 5.9% for April will likely not push the South African Reserve Bank to hike interest rates, economists said on Wednesday.
SA’s consumer price index (CPI)‚ was unchanged at 5.9% year-on-year (y/y) in April‚ according to Statistics SA (Stats SA).
The Reserve Bank uses the CPI to target inflation.
On a month-on-month basis, inflation slowed to 0.4% compared with 1.2% in March.
Economists expected inflation to ease to 5.8% y/y and 0.2% month-on-month.
Responding to the CPI figures, economists said that Reserve Bank Govenor Gill Marcus is still likely to hold the interest rates on Thursday.
"The likelihood of the Sarb cutting rates is slim and our view remains for rates to remain flat for an extended timeframe" said Mohammed Nalla‚ head of strategic research for global markets at Nedbank Capital.
He added that upside risks to inflation continue to weigh on the Monetary Policy Committee's (MPC) decision making as do downside growth risks.
The downside growth risks are arguably more impacted by labour unrest and lost productivity, he said.
Elna Moolman from Renaissance Capital said the CPI number has no impact on its interest rate view, but it seems as if the upside surprise might be evidence of increased pass-through from the weaker rand since the second half of 2012.
"The increased upside risk to the medium-term inflation outlook would support our base case view for no further rate cuts."
Overall headline inflation remains very close to the upper end of the Sarb's inflation target, said Razia Khan, regional head of research for Africa at Standard Chartered.
She said that the rand weakness is adding to the market's nervousness over the extent of the eventual breach of the inflation target.
"Nonetheless, the Sarb has already made clear that they will not react to technical drivers of inflation alone, that demand also matters," said Khan.
She said the key factor on Thursday's MPC press conference is going to be the balance struck between concern about the breach of the inflation target and concern over the slowdown in the economy.
"The statement will be key to shaping interest rate expectations in South Africa and whether there is any likelihood of new easing in response to growth disappointment."
Stanlib economist, Kevin Lings said a little bit of food inflation probably surprised people.
"I still do not think there is a huge build up of inflationary pressure at the moment."
He said the currency weakness is a fairly recent event, which will most likely have an impact going forward.
Salomi Odendaal from Citadel shared Lings sentiments. She said inflation is still a bit sticky but there is no real pressure that Citadel can see coming through.
"Global inflation is down to 2%. That should also play a part in keeping South African inflation under control."
Odendaal said the weaker rand is certainly a risk to CPI.
"If it remains at these levels, it could push prices higher and the Reserve Bank will take that into account," she added.
SA’s consumer price index (CPI)‚ was unchanged at 5.9% year-on-year (y/y) in April‚ according to Statistics SA (Stats SA).
The Reserve Bank uses the CPI to target inflation.
On a month-on-month basis, inflation slowed to 0.4% compared with 1.2% in March.
Economists expected inflation to ease to 5.8% y/y and 0.2% month-on-month.
Responding to the CPI figures, economists said that Reserve Bank Govenor Gill Marcus is still likely to hold the interest rates on Thursday.
"The likelihood of the Sarb cutting rates is slim and our view remains for rates to remain flat for an extended timeframe" said Mohammed Nalla‚ head of strategic research for global markets at Nedbank Capital.
He added that upside risks to inflation continue to weigh on the Monetary Policy Committee's (MPC) decision making as do downside growth risks.
The downside growth risks are arguably more impacted by labour unrest and lost productivity, he said.
Elna Moolman from Renaissance Capital said the CPI number has no impact on its interest rate view, but it seems as if the upside surprise might be evidence of increased pass-through from the weaker rand since the second half of 2012.
"The increased upside risk to the medium-term inflation outlook would support our base case view for no further rate cuts."
Overall headline inflation remains very close to the upper end of the Sarb's inflation target, said Razia Khan, regional head of research for Africa at Standard Chartered.
She said that the rand weakness is adding to the market's nervousness over the extent of the eventual breach of the inflation target.
"Nonetheless, the Sarb has already made clear that they will not react to technical drivers of inflation alone, that demand also matters," said Khan.
She said the key factor on Thursday's MPC press conference is going to be the balance struck between concern about the breach of the inflation target and concern over the slowdown in the economy.
"The statement will be key to shaping interest rate expectations in South Africa and whether there is any likelihood of new easing in response to growth disappointment."
Stanlib economist, Kevin Lings said a little bit of food inflation probably surprised people.
"I still do not think there is a huge build up of inflationary pressure at the moment."
He said the currency weakness is a fairly recent event, which will most likely have an impact going forward.
Salomi Odendaal from Citadel shared Lings sentiments. She said inflation is still a bit sticky but there is no real pressure that Citadel can see coming through.
"Global inflation is down to 2%. That should also play a part in keeping South African inflation under control."
Odendaal said the weaker rand is certainly a risk to CPI.
"If it remains at these levels, it could push prices higher and the Reserve Bank will take that into account," she added.
