23 Nov.
Nedbank Economic Commentary: Consumer Inflation October 2011.
Consumer inflation rises to 6%.
- Consumer inflation came out higher than market expectations in October, increasing to 6% y-o-y from 5,7% y-o-y in September. The market had expected consumer inflation to rise to 5,9% in October.
- Inflation is expected to continue its upward trend in the coming months, rising off the low base established this time last year. Higher food and administered prices will remain the main drivers of inflation.
- The rand will be the wildcard over the coming months. If a credible plan is not found to resolve the European debt crisis, the rand could fall steeply as investors seek the security of so called safe-haven assets.
- Inflation’s steady rise to 6% will not cause the Reserve Bank undue concern in the short term. However, the Bank will watch for signs that it is feeding through into higher wage demands and into more generalised inflationary pressures. In the short term the Bank will continue to focus on how Europe’s debt crisis unfolds and what implications this may have for both inflation and growth. The Bank is likely to maintain its cautious wait-andsee approach until the global and local economic environment becomes clearer. We maintain our view of unchanged interest rates until the third quarter of 2012, but acknowledge that the possibility of a rate cut in the short term has increased.
Comment
Consumer inflation gathered momentum in October, increasing to 6% y-o-y up from 5,7% yo- y in September.
Food inflation continued to pick up, increasing to 11% from 8,7% in September and 2,9% at the start of the year. Over the month, prices rose by 2,2%, largely due to higher prices for bread (up 1,4% m-o-m), vegetables (up 7,5% m-o-m) and meat (up 2,7% m-o-m). The price of fish, sugar and sweets also increased over the month.
Rising transport costs, which make up nearly 19% of the basket, also added to inflation pressures. Inflation in this category rose to 6,7%, up from 6,6% in the previous month, largely driven by higher fuel costs, which rose by 30% y-o-y. Falling vehicle prices continue to act as a damper on inflation in this category, with vehicle prices falling by 1,2% over the year.
Services inflation picked up slightly in October, increasing to 5,5% from 5,4% in the previous month, due to increases in insurance premiums as well as other services. Durable goods prices continued to fall on a year-on-year basis, declining by 2,7%, largely due to lower prices of cars, furniture and appliances compared to this time last year. Semi-durable goods inflation moderated slightly to 1,4% from 2,2%. In contrast, non-durable goods inflation rose to 11%, up from 9,4% in September. …
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