SA’s slowing inflation raises hopes on rates
Headline inflation slowed in April, giving rise to hopes this may lead to a pause in the Reserve Bank’s tightening cycle today.
|||Johannesburg - Headline inflation slowed in April to 6.2 percent from 6.3 percent in the prior month, giving rise to hopes this may lead to a pause in the Reserve Bank’s tightening cycle today.
The central bank has raised its benchmark rate by 100 basis points in its last three meetings to 7 percent.
It has stressed its mandate to protect price stability despite the increasing risk of recession this year.
Another boost to the economy is data by Statistics SA yesterday, which shows retail sales grew by 2.8 percent year on year in March after 4 percent growth in March.
Core inflation, which excludes food, fuel and energy prices, grew marginally to 5.5 percent from 5.4 percent.
Annabel Bishop, the chief economist at Investec, said core inflation felt the upward pressure from high state-administered price inflation from water and other services of 9.8 percent year on year.
She said last month’s large petrol price hike limited the scope for a substantial retreat in headline inflation.
“The fall in the petrol price in late 2014 and early 2015 created a low base effect, without which the outcome for consumer price index inflation in the first quarter would have been closer to 6 percent year on year instead of the outcome of 6.5 percent,” Bishop said.
Ian Watson, the chief executive of DebtBusters, said while his organisation recognised it remained imperative to curb inflation, an increase in the repo rate would hurt the over-indebted consumer the most.
“We fear that these consumers are already being squeezed too much. Consumers with vehicle finance, mortgages, clothing accounts and credit cards are going to feel it the most,” he said.
‘Last straw’
“Having already felt the pressures of huge inflationary increases in their expenses, another increase in their debt repayments could be the last straw,” Watson said.
Novare, an independent investment advisory business, said with the slowdown in local economic growth and the lack of a catalyst to turn the situation around, the monetary policy committee (MPC) was likely to take advantage of the lower inflation and not hike.
Novare said the disappointing mining production numbers that recorded an 18 percent year-on-year drop in March meant more jobs were at risk as mining companies were struggling to remain profitable.
“In view of all this, a breather in the current interest rate hiking cycle would be a welcome relief no matter how short lived, as the current direction of slowing inflation is not likely to continue.”
Novare said these had a worsening impact on the outlook for inflation.
“While Moody’s have affirmed South Africa’s credit rating, which is currently two notches above sub-investment grade, the risk of a downgrade by the other two rating agencies remains high as there remains no clear growth catalyst in sight, aside from plans that are yet to be implemented. This will put a lot of pressure to the rand and will likely be inflationary.”
Retail sales growth came in at 2.8 percent year on year in March, down from 4 percent in February. Total sales increased at a lower rate of 0.2 percent quarter on quarter on a seasonally adjusted basis during the first quarter, down from the 1.1 percent recorded in the final quarter of last year.
Nedbank said this suggested that consumer spending, which was the main driver of the economy, remained under pressure and would make only a small contribution to first-quarter gross domestic product.
BUSINESS REPORT