Nedbank: Consumer Inflation

18 Jan.

Nedbank Economic Commentary: Consumer Inflation.

Consumer inflation holds steady in December 2011.

• Consumer inflation was steady in December 2011 at 0,2 % m-o-m and 6,1 % y-o-y, slightly better than market expectations of 6,2 %.
• Consumer inflation was 5 % in 2011 as a whole, up from 4,3 % in 2010.
• Inflation is expected to remain elevated off a low base, hovering above the Reserve Bank’s upper 6 % limit for much of 2012. The upward pressure will mainly come from a weaker rand combined with further increases in food, fuel and administrative prices. However, subdued domestic spending and excess production capacity should help prevent any significant secondary inflationary effects from developing by limiting retailers’ pricing power.
• The key risk in 2012 will be an unpredictable global economy, especially the potential impact of a weak Europe on international commodity prices, local growth and job security as well as the rand.
• Today’s inflation figures are relatively encouraging, coming in slightly below market expectations and suggesting some consolidation towards year-end. Despite this, the Reserve Bank will not only feel uncomfortable with inflation at current levels but also with the likely outcome for inflation over the next 12 months. However, the Reserve Bank’s Monetary Policy Committee (MPC) will also be encouraged by the lack of any significant secondary inflationary effects. Given this, the focus is likely to remain on the downside risks to economic growth, especially the negative consequences of the Eurozone’s sovereign debt crisis and likely recession on domestic economic growth, fixed investment and job security. Consequently, the MPC is forecast to keep interest rates on hold at current low levels until around November this year.

Comment

Headline consumer inflation was steady in December 2011 at 6,1%, slightly better than market expectations of 6,2%.

The prices of goods and services remained relatively contained over the month. The 0,2% m-o-m increase was mainly due to 0,3% increase in the prices of food and beverages and a 0,5% increase in the costs of housing and utilities. Within the food and beverages category, the largest price increases were recorded in fruit (2,8% m-o-m), meat (2%), bread and cereals (0,8%) and oils and fats (0,7%). However, these increases were partially offset by declines in the prices of vegetables (2,9% m-o-m), other food (1,2%), cold beverages (0,9%) and fish (0,7%). Within the housing and utilities category, the upward pressure mainly came from a 0,8% increase in actual rentals and a 0,7% increase in owners’ equivalent rent. …

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