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Consumer inflation slows to just inside the Reserve Bank’s target band
Consumer inflation slows to just inside the Reserve Bank’s target band

Consumer inflation slows to just inside the Reserve Bank’s target band

ECONOMIC NEWS - Sep 21st 2016, 10:46

CONSUMER inflation slowed to 5.9% year on year in August, from the 6% reported for July. 

That was within the expectations of economists, whose forecasts had ranged from the 5.8% expected by Investec and Barclays Research, to Bloomberg’s consensus forecast of 6% and Trading Economics’ 6.1%.

The consumer price index (CPI) increased 0.1% in August from July, Statistics SA said.

Food inflation is still running high in SA, due to the lagged effects of a devastating drought and weakness in the rand earlier in the year.

Food inflation was 11.3% year on year in August, keeping pace with the 11.3% reported for July.

The drought is expected to break this summer, with the arrival of the La Nina global weather pattern, it will be some time before crops, and therefore food prices, recover.

The Reserve Bank meets to set monetary policy this week, with its decision due on Thursday. Inflation at the upper end of, or outside, the 3%-6% target band the and weak economic growth are the two main factors it will weigh.

The Bank’s leading indicator, which gives an indication of where the economy is headed in six to 12 months, came out on Tuesday and suggested conditions would remain tough. It fell to 91.6 points in July from a revised 92.6 points in June (revised from 91.6 points).

Inflation has been outside the 3%-6% target band since the beginning of 2016 and was just within it in July. The 7% rate recorded in February is considered to have been the peak. A weak rand has been one of the reasons for the high inflation, though at its last meeting the Bank said it considered inflation to have stabilised.

In setting interest rates, the Bank considers the outlook for inflation in the coming 12-18 months, rather than the historical data.

The Bank has said it will raise its outlook for economic growth for 2016. But it could also increase its outlook for inflation.

Most economists expect the Bank to stay its hand on Thursday.From DFM Publishers (Pty) Ltd 

Read more about: inflation | economy | consumer

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