CPI falls to 8 percent

Wednesday, June 24, 2009

Pretoria - The Consumer Price Index, used to measure inflation, dropped to an expected 8 percent in May, reported Statistics South Africa (Stats SA) on Wednesday, and economists believe this trend is likely to continue.

"The headline CPI annual inflation rate in May 2009 was 8 percent. This rate was 0.4 of a
percentage point lower than the corresponding annual rate of 8.4 percent in April 2009," reported Stats SA.

Speaking to BuaNews, Bureau for Economic Research (BER) economist Hugo Pienaar said:"It was expected. The positive thing is that from February to April we saw inflation come down. In May, it came down again - this is clearly positive news," said Mr Pienaar.

Mr Pienaar said he expected the trend to continue. "We expect the downward trend to continue," he said, adding that the moderation of food prices played a role in the decrease.

Nedbank, in its commentary on the CPI, forecasted that inflation for June will ease up to around 7 percent.

"Inflation is expected to ease over the coming months due to base effects, following the sharp run up in commodity prices last year and their subsequent decline. However, inflation could remain sticky, particularly if retailers don't respond to weakening demand by cutting prices," said the bank.

The data comes as the South African Reserve Bank's Monetary Policy Committee (MPC) began its two-day meeting over the repo rate today.

Economists are predicting a 50 basis point cut in the repo rate which currently stands at 7.5 percent.

"We are calling on a 50 basis point cut. If we do get the cut, this is likely to be the final one," said Mr Pienaar.

If the bank continues to cut the repo rate, this will amount to a 500 basis points cut in the last six months "which is pretty aggressive," he said.

Nedbank said the MPC would continue cutting interest rates in order to provide the domestic economy with some support against the recession.

"We therefore still forecast more interest rate cuts in the coming months, with the prime rate falling to 10.5 percent at this week's meeting and to around 10 percent by September," said the bank.