Inflation quickens to 6.5%

Stats SA also released the Consumer Price Index (CPI) figure which has remained constant at 7% year-on-year for July 2007.

The CPIX is the annual percentage change in the CPI excluding mortgage bond interest rates, for the historical metropolitan and other urban areas.

Speaking to BuaNews, economist at the Bureau for Economic Research (BER) Christelle Grobler said the newly announced CPIX figure has come in higher than expected.

“BER's official forecast was for CPIX to come in at 6.4%. Our forecast was higher than Bloomberg's consensus of 6.2%,” said Grobler.

She said the main contributors to the annual increase in CPIX included food, housing, medical care and health expenses, fuel and power, household operations, education and transport.

Grobler said July's electricity price increases could be responsible for the 0.3% increase in fuel and power.

The annual rate of increase for food prices for the historical metropolitan areas has increased 0.7 of a percentage point from 9.5% at June to 10.2% at July of this year.

Whilst this is the fourth consecutive breach of the 3 to 6% inflation target band set by the Reserve Bank, Grobler said the interest rate is reaching its pinnacle: “We've reached peak, so we [at the BER] do not foresee another interest rate hike by the Monetary Policy Committee [MPC] in October.”

Agreeing with Grobler's analysis, economist at Investment Solutions Chris Hart told BuaNews on Wednesday, “Today's announcement comes as no surprise, but it [the CPIX figure] did come in higher than expected.”

Hart said the interest rate is peaking, and played down the likelihood of Reserve Bank Governor Tito Mboweni further raising interest rates at the next MPC meeting in October.

“Whilst there still is a chance that the interest rate might be pushed up, we are putting our money on the fact that it won't. We're calling the decision marginal,” said Hart.

With interest rates likely to remain stable or even show a downward trend in the future, bringing further respite to South Africans, in particular the country's motorists, is the prospect of a fourth consecutive fuel price decrease.

Grobler said over-recovery on fuel currently stands at 24 cents, and it is likely that “we will see about a 20 cent decrease in fuel prices by early next month.”

Hart said, “The fourth respective decrease in fuel prices will further help to ease the current inflationary pressure.”

Economists predict the inflation rate will fall within the 3 to 6% target range once more, in the second quarter of 2008.

Article published courtesy of BuaNews