CPI falls to 5.7 % in February

Wednesday, March 24, 2010

Pretoria- The Consumer Price Index for February fell to 5.7 percent, Statistics South Africa (Stats SA) announced on Wednesday.

"It is a surprise seeing that inflation is falling more rapidly than anticipated. It is good news that the cost of food and clothing has decreased. It is a fairly widespread decline," Standard Bank senior economist Dr Johan Botha told BuaNews.

Market expectation was that it would fall to 5.9 of the Reserve Bank's inflation target of between three and six percent.

February's figure was 0,5 of a percentage point lower than the 6.2 percent recorded in January.

According to Stats SA the food and non-alcoholic beverages index decreased by 0.4 percent between January 2010 and February 2010 with the annual rate decreasing to 1.8 percent in February 2010 from 2.4 percent in January 2010.

The monthly decrease in the food and nonalcoholic beverages index was largely driven by monthly decreases in fruit, vegetables, meat, bread and cereals among other things.

The clothing and footwear annual rate decreased to 3.1 percent in February 2010 from 4 percent in January 2010 while the monthly index was unchanged.

Stats SA released the data early to accommodate the deliberations of the Reserve Bank's Monetary Policy Committee (MPC) regarding rates. The committee's two day meeting will conclude with the seven member committee making an announcement on whether to keep interest rates as they are or to raise them.

The start of the MPC meeting follows the release of the central bank's March Quarterly Bulletin on Tuesday indicating improvement in the country's economy.

"I don't think we will see a change in interest rates. Yesterday's positive (Quarterly) bulletin shows that the economy is starting to grow. We think the bank will sit tight on this one," explained Botha.

"Our view is that they are not going to cut but there is a 45 percent chance that they could cut especially looking at the new mandate in the minister's (Finance minister Pravin Gordhan) letter to the governor," said Nedbank economist Isaac Matshego.

The letter sent to Gill Marcus in February included that job creation and growth as well as inflation be part of policy formulation at the central bank. The letter did not change the Bank's mandate but it shifted the inflation matter to a broader perspective.

The decision on whether to keep rates unchanged or not will be made known tomorrow afternoon. The repo rate currently stands at 7 percent.

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