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CPI remains level at 4.6% ahead of rates decision

Sep 23 2015 10:30
Matthew le Cordeur

Cape Town – The consumer price index (CPI), which measures the country's inflation rate, remained level at 4.6% in August month-on-month, according to Statistics SA on Wednesday.

This rate was 0.4 of a percentage point lower than the corresponding annual rate of 5% in July 2015, but prices were unchanged between July 2015 and August 2015, Stats SA said in a statement.

A slowdown in August’s inflation figures could be exactly what the doctor ordered, as the SA Reserve Bank’s (Sarb) monetary policy committee (MPC) announces its repo rates decision on Wednesday.

“This is the first monthly decrease in y/y (year-on-year) inflation following five months of increases and strengthens the argument for the MPC to leave rates unchanged,” said The Inflation Factory.

“Simple projections of CPI show the y/y rate continuing to increase through to January 2016, with a strong chance of breaching the 6% ceiling by the first quarter of 2016.”

SA is battling slow economic growth, with a gross domestic product (GDP) contraction of 1.3% in the second quarter of 2015. It has been ascribed to the country’s lack of electricity capacity as well as tough conditions in the emerging markets and commodities sector.

In July, the MPC hiked the repo rate by 25 basis points to 6% per annum. South African Reserve Bank (Sarb) governor Lesetja Kganyago said at the time that he was concerned about the “outlook for economic growth that is constrained by severe electricity shortages, low levels of consumer and business confidence, inflationary pressures and the possibility of rising interest rates in the United States”.

Since then, investors have scaled back bets that the Sarb will raise borrowing costs on Wednesday after the Federal Reserve delayed its rates liftoff and as inflation expectations ease, reports Bloomberg.

“The Fed has given us room to breathe,” George Herman, head of South African investments at Cape Town-based Citadel Investment Services, said by phone on Tuesday. “South Africa’s inflation profile has also improved over the last few weeks due to lower energy prices.”

The MPC cited risks that price growth will exceed the upper end of its target range because of the weaker rand when it raised borrowing costs for the first time in a year in July. Sarb seeks to maintain inflation between 3% and 6%.

FULL STORY: D-day for SA rates decision


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