2 minute read
20 Aug 2014
2:17 pm

Six percent inflation to stay – Nedbank

Inflation was expected to remain above the SA Reserve Bank's (SARB) six percent upper target range for the rest of the year, Nedbank said on Wednesday.

Image courtesy stock.xchnge (bizior)

“The biggest risk to the inflation trajectory remains the rand,” the bank’s economic unit said in a statement.

“Inflation pressures will, though, be mitigated by the recent slowdown in global food prices as well as the drop in oil prices.”

It expected next month’s inflation release to show that petrol prices remained flat for the first time since January 2009.

Earlier on Wednesday, Statistics SA said the consumer price index (CPI) for all urban areas was 6.3 percent in July compared to 6.6 percent in June. On average prices increased by 0.8 percent between June and July this year.

Nedbank’s economic unit said the SARB’s monetary policy committee (MPC) raised the prime lending rate by 25 basis points in July in an effort balance increasing inflation and a weakening economy.

“The MPC reiterated that interest rates are in a rising cycle and that at some point they will have to be ‘normalised’.

“The implication is that the MPC will continue to talk tough but to act as moderately as possible. The next hike will probably again be 25 basis points and will probably be in November,” it said.

Statistics SA said most municipalities introduced new tariffs in July each year, resulting in housing and utilities contributing 0.5 of the 0.8 percent price increase.

Electricity tariffs increased seven percent, slightly lower than the maximum 7.4 percent stipulated by the National Energy Regulator of SA.

Water and assessment rates, which were not regulated, increased more, by 9.2 percent and 7.2 percent respectively.

The petrol price increased by a moderate 29 c/l in July, which brought the annual increase in petrol down to 8.3 percent, from the short-term peak of 14.3 percent seen two months ago.

Last July, the annual increase in the petrol price was 22.6 percent.

Food inflation appeared to be moderating as prices dropped from last month in the bread and cereals (one percent), meat (0.3 percent) and fats and oils (1.4 percent) categories.

The drops were largely as a result of improved harvests of grains (maize and wheat) and oil-bearing plants (sunflowers). Maize forms a large part of the feed for cattle and chickens.

Cigarette prices showed a 3.7 percent monthly spike, bringing the annual increase for tobacco products to 7.2 percent.

The increase appeared to be a late implementation of increases in excise taxes, related to the introduction of new stock.