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CPI in line with market expectation

Nov 19 2014 18:29
Sapa

Johannesburg - The headline Consumer Price Index (CPI) rate at 5.9% in October makes it the second consecutive month it is below the SA Reserve Bank's target limit, economists said on Wednesday.

The Nedbank Group economic unit said the CPI was in line with market expectation and below the Sarb's 6% upper target limit after six months above it.

"Inflation is likely to remain relatively contained in the coming months on the back of lower commodity - especially oil and food - prices," the unit said in a statement.

"The volatile rand though does pose an inflation risk and we might start seeing the effects of the rand coming through in the numbers further on in 2015."

The unit said it had pencilled in a 0.25 percentage point interest rate hike when the Sarb monetary policy committee (MPC) announced the rates on Thursday.

"However, much still depends on the trajectory of the currency, which remains extremely vulnerable given the country's large twin deficits and the anticipated changes in global monetary policies."

Sarb governor Lesetja Kganyago was expected to announce the MPC's decision at 15:00 on Thursday.

Statistics SA (Stats SA) on Wednesday said the headline CPI annual inflation rate remained 5.9% in October.

"This rate was the same as the corresponding annual rate of 5.9% in September 2014. On average, prices increased by 0.2% between September 2014 and October 2014," Stats SA said.

In July CPI was 6.3%.

Investec economist Annabel Bishop said while CPI remained within the target range it was likely to fall further over the remainder of 2014.

"We continue to expect the trend will be downward for the remainder of this year," Bishop said in a statement.

"The petrol price fell by only 5c/litre in October, but eased by 45c/litre and around a 70c/litre cut is currently likely for December, which will ease CPI inflation lower."

She said the reduction in oil imports in the United States, the slowdown in economic growth in the eurozone and China, and the shift in usage of oil to natural gas had negatively impacted demand.

Bishop said she expected the interest rate to remain unchanged when the MPC made a decision on Thursday.

"The new Sarb governor is perceived to be hawkish and could view the marginal uptick in core CPI inflation negatively," she said.

"However, core inflation is influenced by administered prices excluding energy and petrol and so is not a true reading of the underlying demand-led price pressures in the SA economy."

She said that Sarb could only influence demand-led inflation in the economy and higher interest rates would not lower the administered price inflation rate as it was set by the state.

Domestic demand had been constrained by low confidence and declining real disposable income growth and this would only gradually improve over the 2015 to 2018 period, she said.

Stats SA said the food and non-alcoholic beverages index increased by 0.2% between September 2014 and October 2014.

"The annual rate decreased to 7.8% in October 2014 from 8.5% in September 2014," Stats SA said.

In the food and non-alcoholic beverages index, fruit, other food, meat, and cold beverages increased.

Oils and fats, hot beverages, vegetables, fish, bread and cereals, sugar, sweets and desserts, and milk, eggs and cheese decreased.

The alcoholic beverages index increased by 1.9% between September 2014 and October 2014, while the annual rate increased to 6.3% in October 2014 from 5.3% in September 2014.

"The transport index increased by 0.3% between September 2014 and October 2014. The annual rate increased to 4.8% in October 2014 from 4.2% in September 2014," Stats SA said.

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