Nedbank: Consumer Inflation

21 Sep.

Nedbank Economic Commentary: Consumer Inflation August 2011.

Consumer inflation beats market expectations in August.

• Consumer inflation came out better than market expectations in August, remaining unchanged from July at 5,3% y-o-y. The market expected consumer inflation to rise 5,5% in August.
• Over the month, prices rose by only 0,2%. The prices on most goods and services remained relatively steady. Food prices rose by less than expected (up only 0,3%), while a 1,3% cut in telephone tariffs pushed communication costs down by 0,6% over the month. The only significant upward pressure came from higher transport costs (up 0,4%) due to the 17c/l increase in the petrol price and higher clothing and footwear prices (up 0,6%).
• Inflation is, however, expected to resume its upward trend in the coming months, rising off the low base established this time last year. The earlier surge in global oil and fuel prices and a weaker rand will slowly filter through to consumer prices, pushing inflation up towards the Reserve Bank’s upper 6% limit by the end of this year, with a breach expected early next year.
• The Reserve Bank’s Monetary Policy Committee will be torn between concerns over the upward climb in inflation and growing evidence of a slowing local economy against the background of a very uncertain and weak global economy. Although worries over the downside risk to economic growth are likely to dominate, the continued rise in inflation and the expected breach of the target range early next year will make the MPC cautious. The wait-and-see approach is therefore expected to triumph at the end of this week’s meeting and deep into 2012, leaving interest rates on hold at current levels for longer. However, if local and global economic conditions were to weaken further, with recession threatening, another interest rate cut may be on the cards before the year is done.

Comment

Consumer inflation remained unchanged at 5,3% y-o-y in August, better than market expectations of a rise to 5,5% y-o-y.

Over the month, prices rose by only 0,2%. The prices on most goods and services remained relatively steady. Food prices rose by only 0,3%, contained by lower prices on bread and cereal (down 0,1%) as well as oils and fats (down 0,2%). Communication costs fell by 0,6% due to a 1,3% cut in telephone tariffs. The only significant upward pressure came from higher transport costs and higher clothing and footwear prices. Transport costs rose by 0,4% due to the 17c/l increase in the petrol price, while clothing and footwear prices increase by 0,6% over the month.

Over the year, the prices on most categories of goods and services were either steady or moderated slightly. Food inflation remained elevated, but eased to 7,3% y-o-y from 7,5% the month before. In contrast, transport costs accelerated to 5,9% y-o-y from 5,3% in July

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