Nedbank: Consumer Inflation

15 Dec.

Nedbank Economic Commentary: Consumer Inflation November 2011.

Consumer inflation rises to 6,1%.

• Consumer inflation came out slightly lower than market expectations in November, increasing to 6,1% y-o-y from 6% y-o-y in October. The market had expected consumer inflation to rise to 6,2%.
• 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 safe-haven assets.
• Above-target inflation is currently being counterbalanced by weakness on the production side of the economy thereby complicating monetary policy. It seems likely that the Reserve Bank will keep interest rates unchanged for most of 2012 unless evidence of second-round inflationary pressures emerge. For the moment, the Bank will continue to focus on the threat posed by the ongoing European debt crisis and the adverse effects on domestic growth.

Comment
Consumer inflation came in below market expectations in November, increasing to 6,1% yo- y up from 6% y-o-y in October.

Food inflation continued to pick up, increasing to 11,1% from 11% in October and 2,9% at the start of the year. Over the month, prices rose by 0,6%, largely due to higher prices for bread (up 1,5% m-o-m), fruit (up 5,6% m-o-m) and meat (up 2% m-o-m).

Rising transport costs, which make up nearly 19% of the basket, also added to inflation pressures. Inflation in this category rose to 6,9%, up from 6,7% in the previous month, largely driven by higher fuel costs, which rose by 29,6% y-o-y. Falling vehicle prices continue to act as a damper on inflation in this category, with vehicle prices falling by 0,8% over the year.

Services inflation remained unchanged at 5,5% in November. Durable goods prices continued to fall on a year-on-year basis, declining by 2,4%, largely due to lower prices of cars, furniture and appliances compared to this time last year. Semi-durable goods inflation rose slightly to 1,7% from 1,4%. In contrast, non-durable goods inflation rose to 11,1%, up from 11% in October. …

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