Publications
Partners
Johannesburg – Inflation fell further in August to 3.5% from 3.7% in July, slightly lower than market expectations and vindicating the Reserve Bank’s decision to cut interest rates by 50 basis points earlier this month.
The Reserve Bank has to pursue a target range of 3% to 6% for inflation.
Targeted inflation has declined from a recent peak of 13.6% in August 2008 to edge below 6% in February. Targeted inflation (previously the CPIX rate) is at its lowest level since February 2007, when it was 3.1%.
CPIX was replaced by CPI as the target last year after changes to the inflation basket.
One of the reasons for the lower-than-expected inflation rate was the decrease in the communications index, which was 3% lower year-on-year in August 2010 from -1.3% in July, mainly due to an annual decrease in postal services and telecommunication services from +1.4% in July to -0.6% in August 2010.
Food price disinflation, one of the main reasons for the low inflation rate, showed signs of turning around in August.
The food and non-alcoholic beverages index increased by 0.5% between July 2010 and August 2010. The annual rate increased to 1.7% in August from 1.4% in July.
Standard Bank economist Shireen Darmalingham said there might be some speculation of further interest rate cuts due to this latest figure, but she believed the cutting cycle had come to an end and monetary policy would be tightened some time next year.
She saw inflation rising very mildly towards the end of this year, yielding a lower average rate for 2010 than previously thought of 4.3%. She expected inflation to average 4.7% next year.
Nedbank economist Carmen Altenkirch said durable and semi-durable goods prices were falling, reflecting the strength of the rand and weak domestic demand which gave retailers limited pricing power.
Also playing a role was disinflation from abroad. In the short-term, there was a chance the inflation rate would fall further because of the rand’s strength.
Otherwise, she expected inflation to start picking up slowly over the remainder of this year and to end the year at about 4%. Her forecast average for next year is 4.9%.
Economists.co.za economist Mike Schüssler said the strong rand was playing a big role. In a situation where oil prices had risen and one would expect the petrol price to rise, prices would actually fall slightly due to the strong rand.
Schüssler also pointed out that inflation excluding administered prices such as electricity and water was only 2.7%. This was evidence of an inflation performance that hadn’t been seen for a long time in SA.
- Fin24.com
The Reserve Bank has to pursue a target range of 3% to 6% for inflation.
Targeted inflation has declined from a recent peak of 13.6% in August 2008 to edge below 6% in February. Targeted inflation (previously the CPIX rate) is at its lowest level since February 2007, when it was 3.1%.
CPIX was replaced by CPI as the target last year after changes to the inflation basket.
One of the reasons for the lower-than-expected inflation rate was the decrease in the communications index, which was 3% lower year-on-year in August 2010 from -1.3% in July, mainly due to an annual decrease in postal services and telecommunication services from +1.4% in July to -0.6% in August 2010.
Food price disinflation, one of the main reasons for the low inflation rate, showed signs of turning around in August.
The food and non-alcoholic beverages index increased by 0.5% between July 2010 and August 2010. The annual rate increased to 1.7% in August from 1.4% in July.
Standard Bank economist Shireen Darmalingham said there might be some speculation of further interest rate cuts due to this latest figure, but she believed the cutting cycle had come to an end and monetary policy would be tightened some time next year.
She saw inflation rising very mildly towards the end of this year, yielding a lower average rate for 2010 than previously thought of 4.3%. She expected inflation to average 4.7% next year.
Nedbank economist Carmen Altenkirch said durable and semi-durable goods prices were falling, reflecting the strength of the rand and weak domestic demand which gave retailers limited pricing power.
Also playing a role was disinflation from abroad. In the short-term, there was a chance the inflation rate would fall further because of the rand’s strength.
Otherwise, she expected inflation to start picking up slowly over the remainder of this year and to end the year at about 4%. Her forecast average for next year is 4.9%.
Economists.co.za economist Mike Schüssler said the strong rand was playing a big role. In a situation where oil prices had risen and one would expect the petrol price to rise, prices would actually fall slightly due to the strong rand.
Schüssler also pointed out that inflation excluding administered prices such as electricity and water was only 2.7%. This was evidence of an inflation performance that hadn’t been seen for a long time in SA.
- Fin24.com
