Nedbank: Consumer Inflation

21 Jun.

Nedbank Economic Commentary: Consumer Inflation.

Inflation returned to within the Reserve Bank’s target range in May.

• Headline inflation fell to 5,7% in May from 6,1% in April, much better than the consensus forecast of 6%.
• Over the month, average consumer prices increased by 0,1%, with the moderate rise mainly reflecting a 0,2% drop in prices of food and non-alcoholic beverages.
• The prices of most other goods and services increased at a slower rate over the month.
• Inflation will remain elevated, peaking at 6,3% around August before easing gradually to end the year at 6%. Demand-side inflation will be contained by weaker spending and a deteriorating global economy. Upward pressure will come from administrative prices and a weaker rand.
• Although the Reserve Bank will be pleased with inflation’s return to the target range, the more subdued trend is probably reflecting a weaker economy, which is translating into softer domestic demand, thereby forcing retailers to discount. The increased downside risks to economic growth will probably continue to dominate monetary policy decisions, resulting in interest rates remaining unchanged for longer. If conditions in Europe and South Africa deteriorate dramatically, the possibility of a cut will increase.

Comment

Average consumer prices increased by 0,1% m-o-m in April, with the moderate rise mainly a result of declines in food prices. Over the month food prices fell by 0,3%, mainly due to a 2,7% drop in prices of fruits, a 1% decline in both unprocessed food and meat as well as a 0,8% fall in oils and fats. In contrast, transport as well as housing and utilities costs increased, rising by 0,4% m-o-m and 0,1% respectively in May. The prices of most other goods and services increased at a slower rate over the month.

On an annual basis, consumer inflation was pushed down by softer food inflation, which moderated to 6,8% from 9,1% in April as well as non-alcoholic beverages, which eased to 4,4% from 5,1%. Meat inflation eased to 7% y-o-y from 8,8%, while that of vegetables slowed to 2,2% from 7,3%. Annual growth in prices of alcoholic beverages and tobacco as well as of clothing and footwear remained steady at 7,3% and 3,6% respectively, while that of transport also edged down slightly to 6,7% from 6,9% in April.

Core inflation (excluding food, non-alcoholic beverages, petrol and energy prices) edged down to 4,4% in May from 4,5% in April. …

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