No change in rates expected soon

2012-12-12 12:17

Johannesburg - Economists see no upward pressure in inflation soon and therefore expect interest rates to stay at the current 5% for most of next year.

They were reacting to news that headline consumer inflation steadied at 5.6% year-on-year in November from October, in line with market expectations.

Statistics South Africa (Stats SA) said on Wednesday inflation braked to 0.2% on a month-on-month basis from 0.6% in October.

Renaissance Capital economist Elna Moolman said in terms of the month-on-month number, the only pressure emanated from food prices.

"Given that there weren't any surprises, it doesn't influence our interest rate view which is that rates will remain at current levels through 2013."

Salomi Odendaal, economist at Citadel agrees: "Food inflation is still rising which is a bit of a concern, but overall we don't see any huge upward pressure on inflation."

She sees inflation roughly at around 6%. "It may top 6% at some stage, but we don't see inflation rising to 7% or anything like that."

Kadd Capital econmist Elize Kruger said the inflation numbers have a neutral impact on their view forward, both in terms of the impact on monetary policy as well as the broader impact on the economy.

"We maintain that interest rates will remain unchanged at current levels for a prolonged period."

Annabel Bishop of Investec concurs, saying they continue to believe that the Reserve Bank will leave interest rates unchanged until November next year, "when a 50 basis point hike could become possible as growth strengthens and monetary policy begins normalising".

"CPI inflation is likely to exceed the target in early 2013, given the impact of the re-weighting exercise, but then fall back into the 3% to 6% target range later in the year."

The South African Researve Bank (Sarb) 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 two meetings since, saying the risks to the inflation outlook were more or less balanced, with higher food and oil prices posing the main upside risk.

Meanwhile the rand was trading at R8.68/$ from R8.6645 before the data was released at 10:00.

The yield on the 2015 bond nudged down half a basis point to 5.435%.

Stats SA has changed the weightings in its consumer price index basket to give a slightly lower weighting to food, while petrol and electricity weightings will rise.

The new weights will apply from January 2013.

  • bruce.williams.1044186 - 2012-12-12 12:44

    It is impossible for food inflation to decrease when the price of petrol is going up by R1 every couple of months!! The taxes on petrol need to be reduced. This will just cause greater pressures everywhere else by the government wanting more money. As usual..

  • denny.cray - 2012-12-12 15:06

    Originally inflation was defined just as an increase in money supply. In modern (proper) terms it is the increase in price of goods as a result of the increase in the amounts of money supply. (i.e. more units of currency chasing after the same goods means that the goods end up costing more units of currency - the purchasing power of the units of currency drop). Prices can however increase or decrease independently of money supply. It would be nice if people attempted to keep these separated. Also keep in mind that the CPI is just an indication of *price* change and one that can be manipulated (as mentioned in the article). It is just (at best) a proxy for actual inflation.

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