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Inflation subdued
Inflation subdued

Inflation subdued on food price drop

ECONOMIC NEWS

Business Day - May 19th 2011, 07:58

INFLATION rose more slowly than expected last month, subdued by a surprise fall in food prices and fanning hope that price pressures may not build as fast as feared this year. 

Consumer prices rose 4,2% compared to the same month last year, a touch higher than the 4,1% increase seen in March and comfortably below forecasts of a 4,4% rise.

It was the biggest increase in 10 months, but still left inflation below the midpoint of an official 3%-6% target range, the data from Statistics SA showed on Tuesday.

The main drivers of the annual inflation rate were higher administered prices set by government entities, and the rising cost of food and petrol. Administered prices include electricity tariffs, which are soaring as Eskom compensates for its history of overly low pricing.

The trend was in step with the Reserve Bank’s decision to keep interest rates steady last week despite an expected breach of the inflation target near the end of the year. The Bank said it was reluctant to raise interest rates as long as inflation stemmed mainly from rising costs in the economy, rather than consumer demand.

"The second-round effects of inflation remain dormant," said Nedbank economist Carmen Altenkirch. The strong rand and lack of pricing power of retailers helped keep inflation pressure in check, she said.

During the month itself, consumer prices rose 0,3% — the lowest since December and well below a 1,2% increase seen in March.

A breakdown of the data showed that food prices actually fell 0,1% in the month, while the annual pace of their increase slowed to 4,8% from 5% in March. This is good news for SA’s poor majority, who spend most of their income on food. It also shows that a surge in global food prices is being tempered by the country’s own food production.

Inflation for goods picked up slightly, to 3,7% from 3,6% in March, while inflation for services also edged up, to 4,7% from 4,6% during the same period, StatsSA said. Each category accounts for half the weighting of the basket of goods and services included in the consumer price index.

The inflation data are being monitored closely for clues as to when the Reserve Bank will start to hike interest rates.
 

Read more about: | food prices | inflation

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