Nedbank: Consumer Inflation

25 Aug.

Nedbank Economic Commentary: Consumer Inflation July 2011.

Consumer inflation picks up further.

• Consumer inflation came out slightly ahead of market expectations, rising to 5,3% y-o-y in July, up from 5% y-o-y in June. Inflation continues to be driven by high food and fuel prices as well as increases in administered prices.
• Over the month, prices rose by 0,9%, due to increases in the electricity tariff (up 16%) as well as water and other services (up 8,7% m-o-m). Higher car prices and an increase in the cost of public transport also added to the monthly increase.
• Inflation is expected to rise further in the coming months, due the low base established this time last year. Past rises 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.
• Inflation is forecast to trend upwards in the coming months, breaching the upper band of the target by the end of the year. However, this will probably not perturb the Monetary Policy Committee too much in the upcoming meetings. Rather, the MPC’s focus will be on developments abroad and how this might impact the domestic economy. With growth both domestically and overseas under threat, the MPC will not be in a hurry to hike interest rates. Should the global economy slip back into recession a cut in rates may even be considered. However, for now, we are maintaining our view of unchanged rates until May 2012.

Comment

Consumer inflation rose further in July, increasing to 5,3% y-o-y, up from 5% in June, slightly ahead of market expectations of 5,2%. Inflation continues to be driven by high food and fuel prices as well as increases in administered prices.

Over the month, prices rose by 0,9%, up from 0,4% in the previous month. The main contributors to the monthly increases were higher electricity tariffs (up by 16% m-o-m) as well as water and other services (up by 8,7% m-o-m). Miscellaneous goods and services, a category which includes insurance and financial services, rose by 0,5% m-o-m. Car prices as well as public transport costs also rose over the month. In contrast, petrol prices fell by 3,2% m-o-m.

Food inflation picked up slightly to 7,5% y-o-y, up from 7,3%. Higher food prices continue to be driven by rising prices for breads and cereals, meat as well as oils and fat. Inflation in the hotel and restaurant category also picked up, increasing to 5,4% y-o-y from 1,1% y-o-y. Miscellaneous goods and services category as well as household goods and appliances also experienced modest gains in inflation. …

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