CAPE TOWN: The upward march in consumer inflation decelerated in June thanks to slowing food and vehicle prices, but many economists do not expect this to prevent the Reserve Bank from hiking the repo rate at Thursday’s monetary policy committee (MPC) meeting.
Headline consumer price inflation (CPI) rose to 4.7% year on year in June from 4.6% in May, below the Bloomberg consensus of 5.0%. Core inflation, which strips out the effect of food and fuel prices, retreated for the first time this year to 5.5% year on year in June from 5.7% in May. But while this takes some of the immediate pressure off the MPC, where the decision over whether to raise interest rates is believed to be poised on a knife-edge, economists still expect inflation to accelerate in the course of the year.
Several analysts said that a core inflation rate of 5.5% was quite high for an economy with weak growth, which suggests underlying price pressures remain elevated. Standard Chartered economist Razia Khan felt there was still a “robust case” for the Bank to raise rates 25 basis points on Thursday to 6%, arguing that despite the recent softening in oil prices, SA still faced risks, including outsized electricity tariff hikes.
Nedbank and Stanlib economists felt, however, that June’s softer CPI should provide the Bank with room to keep rates on hold. “Ultimately, though, it is clear that the Bank will endeavour to move interest rates higher in the coming year, despite the weakening of the domestic economy and the increased risk that SA falls into recession,” said Stanlib chief economist Kevin Lings.
