Nedbank: Consumer Inflation April 2011

17 May.

Nedbank Economic Commentary: Consumer Inflation April 2011.

• Consumer inflation rose by less than expected in April, increasing to 4,2 % from 4,1 %, compared with market expectations of a rise to 4,4 %.
• Higher petrol prices as well as an increase in the cost of some categories of services were mainly responsible for the monthly increase. This was partly offset by a decline in food and durable goods prices.
• Higher food and fuel prices are still expected to push inflation to the upper limit of the target band in the final quarter of 2011.
• Much now depends on whether global food and fuel prices, which appear to have halted their upward trend, will ease off in the coming months as global growth slows. If this is the case inflation should fall back below 6 % in early 2012.
• Despite rising inflation, we still expect the Reserve Bank’s MPC to delay its first hike until early 2012 as an early interest rate increase would risk curbing economic growth.

Comment

Consumer inflation rose by less than expected in April, increasing to 4,2% from 4,1%, compared with market expectations of a rise to 4,4%.

Food prices declined by 0,1% m-o-m, due to lower fruit, fish and meat prices, which helped food inflation to moderate to 4,8% y-o-y from 5,1% y-o-y.

The price of durable goods fell over the month, declining by 0,5%, due to lower prices for furniture, appliances and recreational equipment. Durable goods prices continued to decline on an annual basis, falling by 2,3% from 2,6%.

The transport category rose by 1,2% m-o-m, mainly due to a 5,6% increase in the price of petrol as well as a 1,1% m-o-m increase in other running costs. Vehicle prices were unchanged over the month. Annual inflation in transport rose modestly to 3,4%, largely driven by petrol, which rose by 16,3% y-o-y.

Services inflation picked up to 4,7% from 4,6%, due to an increase in recreational and cultural services as well as other services, which include funeral costs.

Administered prices are the main driver of inflation, increasing by 10,7% y-o-y. Excluding administered prices, inflation remains muted at 3,0%, up modestly from 2,9% in the previous month. …

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