Inflation could rise

15 December, 2006 at 9:44 am | Posted in Economy | Leave a comment

South Africa’s main inflation gauges are expected to have resumed their march higher on rising food prices last month after a brief reprieve, keeping up pressure for higher interest rates.
The annual increase in the consumer price index excluding mortgage costs (CPIX) is likely to have ticked up to 5.2 percent last month from 5 percent in October, according to a Reuters poll of 11 economists. This would be the fastest inflation in more than three years. The headline consumer price index, which will be released next Wednesday along with CPIX, is forecast to show year-on-year inflation of 5.7 percent, the fastest since June 2003. October headline inflation measured 5.4 percent.

Reserve Bank governor Tito Mboweni said last week that CPIX inflation should breach the upper end of the 3 percent to 6 percent target range in April, before declining. He has raised interest rates four times for a total increase of 2 percentage points to 9 percent since June in an effort to tame inflationary pressures. Some analysts expect another hike in February.

The poll showed producer inflation accelerating from the previous month’s near four-year peak to 10.2 percent. The index, which has surprised markets on the upside this year and tends to lead consumer prices, is due to be released on Thursday. “Last month’s inflation data were characterised by unpleasant surprises … The pressure was more broad-based than before and than expected,” said Standard Bank economist Elna Moolman. “The data … pertaining to November, are expected to be governed by the same themes of accelerating inflation and broad-based price pressures.”

The CPIX inflation rate beat forecasts in October, dipping only slightly despite a sharp drop in fuel prices, pointing to strong underlying price pressures. Factory gate inflation outstripped predictions, jumping to double digits for the first time since November 2002. Soaring credit extension and producer prices, driven by rising food costs, are two of the central bank’s main concerns. Credit growth jumped to a record 27.48 percent year on year in October, prompting stern warnings from Mboweni to consumers and banks to stop the “madness”.

Factory gate prices may benefit from a strengthening Rand in the months ahead, which could help to temper imported inflation – the main driver in October. The Rand firmed by about 4 percent against the dollar last month and has since extended these gains. Brait economist Colen Garrow said the main drivers of inflation this year, food and fuel costs, would be at the fore again, with lower petrol prices helping to offset continuing pressure on food. This could help to moderate last month’s inflation. “For the month, inflation should be marking time, not really doing anything,” he said in the most optimistic forecast.



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