Nedbank: Consumer Inflation

20 Jul.

Nedbank Economic Commentary: Consumer Inflation Jun 2011.

Consumer inflation in line with market consensus.

• Consumer prices rose by 0,4% m-o-m and 5,0% y-o-y in June after increasing by 0,5% m-o-m and 4,6% y-o-y in May. This was in line with the market consensus.
• Food inflation remained the main driver of the increase in overall CPI, rising to 7,1% y-oy from 6,1% in May, with food prices up by 0,5% during the month.
• Inflation is expected to rise further in the coming months. Increases in international 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 the direction of global food and fuel prices, whether second-round effects remain dormant and the rand’s future course. Domestic factors that will contribute to higher inflation will be recent sharp increases in electricity tariffs as well as municipal rates. 
• Today’s CPI number was within expectations and is not likely to have a major impact on deliberations at the MPC meeting, with the focus more on the dangers of recent above inflation wage settlements. We still expect the MPC to maintain its wait-and-see policy until there is greater evidence of “more generalised inflation”, either due to second-round effects from higher commodity prices or price pressures emanating from firmer domestic demand. Latest statistics on local and international growth have not been encouraging and we would therefore still expect the Reserve Bank’s MPC to delay its first hike until early 2012, as an early interest rate increase would risk curbing the economic recovery.

Comment

Consumer inflation came out in line with market expectations but slightly higher than our forecast. Food inflation remained the main driver of higher inflation, with the 0,5% m-o-m rise in overall food prices pushed up by higher prices of key foodstuffs, with prices of bread and cereals (0,5% m-o-m), meat (0,3% m-o-m), Milk, egg and cheese (0,5% m-o-m) and vegetables (2,2% m-o-m) rising during the month. Food inflation jumped to 7,1% y-o-y from 6,1% in May.

Other key contributors to higher inflation were higher costs of housing and utilities, which rose by 1,0% m-o-m and 6,8% y-o-y on the back of higher housing costs. Rentals for housing and owner’s equivalent rent, which are surveyed on a quarterly basis, were up by 1,5% m-o-m and 1,6% m-o-m and by 5,9% y-o-y and 4,6% y-o-y, respectively. Transport costs increased by 0,6% m-o-m and 5,2% y-o-y, pushed up by a 6,5% m-o-m jump in public transport tariffs, which are also surveyed on a quarterly basis.

Goods inflation increased to 4,9% y-o-y from 4,5%, while services inflation was up at 5,2% y-o-y from 4,7%. CPI for administered prices increased to 12,0% y-o-y from 11,3%, while CPI excluding administered prices was slightly up at 3,8% y-o-y from 3,4%. …

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