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CPI expected to edge up slightly
CPI expected to edge up slightly

CPI expected to edge up slightly


Business Live - Dec 13th 2011, 09:47

The consumer price index (CPI) - the measure used by the SA Reserve Bank (SARB) for its inflation target - is expected to edge up slightly to 6.2% year on year (y/y) in November from the unexpected 6.0% y/y seen in October, according to a survey of leading economists by I-Net Bridge. 

Forecasts among the 11 economists ranged from 6.1% to 6.4%.

According to Absa Capital economist Gina Schoeman, in a low survey month, they looked for food and fuel to be the largest contributors to the 0.4% month-on-month (m/m) rise they forecast for November headline CPI.

The 23-cent/litre petrol price increase during the month should push the transport category up 0.9% m/m, and continued upward pressures should result in an increase of about 1.1% in food prices, she said.

"Those gains would leave CPI food inflation at 11.1% y/y and CPI transport inflation at 7.4%.

"Aside food and transport, we are looking for a slight uptick in core inflation to 4.0% y/y after tracking sideways at 3.8% for the past three months - our analysis of underlying inflation suggests that it is just a matter of time before core inflation starts to pick up, and considering robust consumer metrics recently, this should not come as a surprise," Schoeman said.

Meanwhile, Standard Bank research strategists, Thabi Leoka and Shireen Darmalingam said factors beyond SA's control continued to undermine the inflation outlook.

According to the strategists inflation was likely to remain high in the medium term, on the back of a weakened global economic backdrop, higher oil prices and a particularly volatile exchange rate.

"Core inflation - CPI excluding food, non-alcoholic beverages and petrol, is likely to remain around the mid-point of the 3%-6% target, implying that higher prices are being driven by cost-push factors.

"In this muted growth environment, higher CPI will affect growth and stunt job creation," they said, maintaining that the combination of slow GDP growth and upward pressure on domestic inflation, driven by exogenous factors, presented a challenge to monetary policy.

"The reserve bank, initially expecting CPI inflation to breach target for a shorter period, now expects the breach to last for four quarters.

"Policymakers must make sure that steps taken to contain inflation are not premature and risk slowing growth further. We expect CPI inflation to increase to 6.2% in November. The risks to our inflation outlook stems from a weakening rand," they added.

Annual CPI registered at 4.3% in 2010 from 7.1% in 2009 and 11.5% in 2008. It was at 7.1% in 2007. The annual average for CPI was 4.7% in 2006 from 3.4% in 2005, compared with only 1.4% in 2004, which was the lowest annual average since 1958.

The November CPI data will be released by Statistics SA at 10:00 on Wednesday, December 14. 

Read more about: inflation | forecasts | cpi | consumer spending

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