SA on track for third year of moderating inflation
By Karl Gernetzky - Nov 25th, 09:41
SA’s largest asset manager Investec says SA is likely to see average inflation of 4.5% in 2020, with price pressure consistently moderating since 2016.
Despite this being the midpoint of the Reserve Bank’s target range, the Bank is unlikely to cut rates until the risk of a junk status rating from Moody’s Investors Services is removed, said Investec chief economist Annabel Bishop in a note.
SA has seen two years of materially declining consumer price inflation (CPI), with 2019 now proving to be a third. Investec has lowered its forecast for inflation in 2020 to 4.5%, from 5% at the start of the third quarter of 2019.
Lower inflation expectations have become entrenched, in turn helping lower the rate of inflation itself, with salary and wage increases also moderating, said Bishop.
Subdued consumer demand is contributing to lower food price inflation, said Bishop, although SA is a drought-prone country, which means long-term volatility in inflation is likely.
There are hopes that SA will get a second interest rate cut from the Bank later on Thursday, although the consensus is that it will keep rates on hold, due to the threats posed by SA’s fiscus and further credit-ratings downgrades.
The structural rate of inflation in SA is likely declining and if it persists will support lower interest rates, but only if the Moody’s outlook returns to stable, said Bishop. “The monetary policy committee is unlikely to change the repo rate during such an uncertain time.”
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