Consumer inflation slows to 5.4%

Feb 20 2013 10:49

Johannesburg - South Africa's headline consumer inflation slowed to 5.4% year-on-year in January, well below the market's expectations, from 5.7% in December, Statistics South Africa said on Wednesday.

Inflation was at 0.3% on a month-on-month basis in January compared with 0.2% in December, lower than market consensus of 0.55%.

Economists had expected inflation to come in at 5.7% year-on-year in January. The release is the first one under a rebasing from a 2010-2011 household spending survey.

Peter Attard Montalto, economist at Nomura said: "The new re-based and re-weighted CPI index comes in at 5.4%t which is quite a bit lower than the 5.7% we looked for.

"There were unlikely to have been enough surprises in actual underlying prices to drive this and we already have the weights so the difference must come from a mix of the methodological changes and the re-basing exercise.

"Whilst the MPC is looking through this exercise and are still concerned about the possibility of pass through from wages, and whilst this won't be enough to add back into our forecast a final rate cut, we do still highlight the much larger probability of a final cut than the market current expects."

Analyst Anisha Arora said: "Overall the impact of the reweightings has been negligible, and even under the original 2008 weights, the figures would have been very similar.

"This is due to the fact that while food prices ticked up in January, under the new basket less weighing is placed on food, from 15.68% to 15.41%.

"Indeed a greater weighting has been put on petrol at 5.68% from 3.93% previously, but petrol prices dropped 1.2% month-on-month, which cancels out the increased weighting.

"The MPC will be comfortable with this 5.4% year-on-year rate, which is coming lower within the 3%-6% target band, and indeed the risks to headline inflation for 2013 may be not be as large as initially expected.  

The rand was at R8.84 against the dollar at 08:18 GMT, from R8.8550 before the data was released at 08:00 GMT.

The yield on the 2026 bond dropped to 7.185 % from 7.225%.

Statistics South Africa has changed the weightings in its consumer price index basket to give a greater weight to petrol and electricity prices.

The SA Reserve Bank was able to cut interest rates for the first time in 20 months in July partly because of softer-than-expected inflation prints.

It left rates unchanged in the three meetings since, but said the risks to the inflation outlook were on the upside with a weak rand exchange rate and higher expected wages the main risk factors. 

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