CPI drops to 6.9 percent

Wednesday, July 29, 2009

Pretoria - The Consumer Price Index (CPI), used to measure inflation, dropped to 6.9 percent in June compared to 8 percent in May, reported Statistics South Africa (Stats SA) on Wednesday.

The June figure was lower than economists expected. However, inflation remains above the SA Reserve Bank's (SARB) target range of three percent to six percent.

Nedbank in its commentary on the CPI described the June figure as encouraging. However, added that the SARB might not cut rates as soon as August.

"August may be too soon and although we're saying that there'll be two more rate cuts of 50 basis points each, these may come around September and November," said Dennis Dykes, chief economist at Nedbank.

Meanwhile, consumers are cutting back on spending and banks have tightened their lending conditions.

This was confirmed by today's data from the SARB showing a further slump in credit demand.
Growth in demand for credit by the private sector slowed to 3.98 percent year-on-year in June, from 5.70 percent in May, the SARB said.

June's figure was a five-year low and below economists' forecasts.

According to a statement released by Nedbank, consumer demand for credit, particularly for big-ticket discretionary items, is likely to remain weak for much of the remainder of the year.

"Despite significant interest rate relief since December, concerns about falling income, job security and fading wealth have clearly dominated consumer's purchasing decisions, resulting in more conservative spending patterns," the bank said.

Unfortunately, relief for households is still likely to be elusive in the months ahead, Nedbank said, adding that unemployment is forecast to increase further and asset prices will remain depressed.

Nedbank said these concerns are likely to dominate for much of 2009, forcing households to limit spending, repay debt and bolster savings.

"As a result, growth in instalment and leasing finance will probably remain negative for much of the remainder of the year.

"During 2010 an improvement in personal finances as well as better growth prospects should see a modest recovery in credit demand," Nedbank said.