Economy

Consumer inflation rises to 4.2%

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19 May 2011

The Consumer Price Index (CPI) rose to 4.2% in April, Statistics South Africa (Stats SA) said on Tuesday.

"This rate was 0.1 of a percentage point higher than the corresponding annual rate of 4.1% in March 2011," Stats SA said, adding that the food and non-alcoholic beverages index decreased by 0.1% between March and April 2011, with the annual rate decreasing to 4.8% in April 2011 from 5% in March 2011.

"Consumer inflation rose by less than expected," the Nedbank group of economists said. Market expectation was that it would come in at 4.4%.

"A surprise fall in food prices over the month, which saw food inflation moderate, as well as declines in the prices of some durable goods, including furniture and appliances, were responsible for the more modest monthly increase," said the bank.

According to economists, higher food and fuel prices are still expected to push inflation to the upper limit of the target band in the last quarter of 2011.

"Much now depends on whether global food and fuel prices, which appear to have halted their upward trend, will ease off in the coming months as global growth slows. If this is the case inflation should fall back below six percent in early 2012."

At its third Monetary Policy Committee Meeting last week, the Reserve Bank revised upward its CPI forecast with inflation now expected to reach the upper limit of the inflation target range during the final quarter of 2011, and to peak at 6.3% in the first quarter of 2012.

Domestic demand below potential

Nedbank expects second round effects of inflation to remain dormant with semi-durable and durable goods inflation still well contained by the strong rand as well as retailers' the lack of pricing power.

"With domestic demand still below potential demand-pull, inflation is not currently anticipated to pose a threat to the inflation outlook," the bank said.

However, above inflation wage increases, a sharper than expected depreciation of the rand, high food prices as well as higher oil prices are possible upside risks to the forecast.

"The MPC is likely to continue with its wait-and-see policy until there is greater evidence of more generalised inflation, either due to second-round effects from higher commodity prices or price pressures emanating from robust domestic demand.

"Despite rising inflation, we still expect the Reserve Bank's MPC to delay its first hike until early 2012 as an early interest rate increase would risk curbing economic growth," said Nedbank.

Source: BuaNews