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Consumer inflation surprised to the downside in August, lessening the likelihood of an interest-rate increase by the SA Reserve Bank.
Consumer inflation surprised to the downside in August, lessening the likelihood of an interest-rate increase by the SA Reserve Bank.

With August's CPI lower than expected, a hike in interest rates will be a close call

ECONOMIC NEWS

By Maarten Mittner - Sep 19th 2018, 10:22

Consumer inflation surprised to the downside in August, lessening the likelihood of an interest-rate increase by the SA Reserve Bank. 

The central bank will announce its rate decision at the conclusion of its monetary policy committee (MPC) meeting.

The consumer price index (CPI) increased 4.9% in August, lower than the previous month’s 5.1% and an expected rise of 5.2%.

The rand firmed on the news, strengthening to R14.77 to the dollar from R14.8917.

The dollar gained 10.69% against the rand in August amid global risk-off trade on concern of an escalated global trade war between the US and China.

The MPC tends to increase rates when its inflation forecasts rise close to the upper limit of its annual 3%-6% CPI inflation target range, over its target period of 6-24 months.

Investec chief economist Annabel Bishop said it was going to be a close call for the Bank, against the background of a weaker rand and rising oil prices, which have fed into inflationary pressures.

Some second-round effects have emerged in the latest CPI inflation data, and more are likely as the rand has weakened for a sustained period between May and September.

Second-round effects occur when prices rise in the broader economy, causing higher inflation.

An increase of R1.10 a litre is building in the petrol price (R1.35 a litre for diesel) for October due to a rise in the oil price and rand weakness.
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