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April petrol price rise a negative for CPI
April petrol price rise a negative for CPI

April petrol price rise a negative for CPI


Business Live - Mar 28th 2012, 09:15

The petrol price could rise by as much as 60 cents a litre in April, leading to a negative impact on month-on-month changes in CPI inflation, Absa Capital economist Jeff Schultz says. 

At a quarterly economic update on Tuesday, Absa Capital said it expected April to be a "big month".

An eight cents a litre Road Accident Fund (RAF) levy, and a 20 cents a litre fuel levy announced in the February budget come into effect in April. The situation is exacerbated by a current under recovery of about 30 cents a litre on petrol, according to official figures.

If the petrol price were to rise by 60 cents a litre, this would bring petrol prices to fresh record highs.

A litre of petrol in Gauteng cost R7.07 in March 2009. Three years later, a litre of petrol costs R11.23.

The impact on inflation during April would be significant, said Schultz.

Speaking to BusinessLIVE, Schultz said that the transport category was set to contribute significantly to the expected month-on-month increase in CPI in April.

"The transport category is going to be one of the largest contributors to the month-on-month uptick in CPI," Schultz told I-Net Bridge.

Despite the moderation in the food price index in February, Schultz said they believed that food prices were likely to resume an upward trajectory in the coming months.

"We're looking for food prices to peak at around 13.5% by the middle of the year. So certainly by April we are expecting as well that CPI food is probably going to be somewhat higher than just over 10% where it is currently," Schultz said.

Absa Capital forecast CPI to peak at around 6.7% my mid-year before moderating back into the 3% to 6% target band by early 2013.

Although SA monetary authorities will still significantly bear CPI in mind when making interest rates decisions in the second half of 2012, they will also think more about growth, Schultz said.

Schultz said that the time for "extremely accommodative" interest rates in SA would have to end.

"We believe that by the end of this year the South African real economy will be demanding the very accommodative policy stance that we currently have, less and less," he told BusinessLIVE.

"At the moment we do still have sectors of the economy that are really struggling, but we believe that by the end of the year, those sectors will be doing somewhat better than they are now. The reserve bank will be hiking interest rates not because of inflation, but rather because we need to engage in a normalisation cycle in SA. We can't operate at 30-year low interest rates forever," he said.

The bank forecast that interest rates would likely be hiked by 50 basis points in November, and hiked by a total of 150 basis points in 2013 as a whole, delivered gradually.

Absa Capital marginally lowered its economic growth forecast for 2012 to 2.7% from 2.8%. Growth would be consumption-led and more broad-based, the bank added.

Headwinds for the SA economy included significant strike action especially in the mining sector, while electricity supply constraints would be "a handbrake" on SA GDP growth, Schultz said.

Expectations for the rand were for the local currency to reach the R7.00 to the dollar by mid-year, and R9.10 against the euro.

The bank said that the main catalyst for its more upbeat assessment about the rand prospects rested with the heightened levels of global risk appetite.

"We expect the ZAR to surrender some of its ground in relation to the dollar, and end the year at R7.52 in relation to the greenback," Mike Keenan, Absa Capital currency analyst said.  

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