CPI falls to 8.4 percent

Wednesday, May 27, 2009

Pretoria - The Consumer Price Index used to measure inflation, dropped to 8.4 percent in April, reported Statistics South Africa (Stats SA).

"The headline CPI annual inflation rate in April 2009 was 8.4 percent. This rate was 0.1 of a percentage point lower than the corresponding annual rate of 8.5 percent in March 2009," said Stats SA on Wednesday.

Speaking to BuaNews, Bureau for Economic Research (BER) economist Hugo Pienaar said he expected the CPI to move toward the 8 percent mark while Nedbank said that consumer inflation was proving to be sticky.

"CPI fell less than expected in April mainly due to increases in food, fuel and higher car prices," Nedbank said in a statement.

It further added that service inflation which tends to be backward looking was the main culprit behind persistent inflation.

The data released on Wednesday comes a day after National Treasury confirmed that the South African economy was in a recession.

South Africa's Gross Domestic Product in the first quarter of 2009 contracted by an annualised 6.4 percent.

The contraction is the second in a row since the last quarter of 2008 that contracted by 1.8 percent. According to economists, two consecutive quarters of negative growth means an economy is technically in recession.

Meanwhile, both Nedbank and Mr Pienaar said further rate cuts were expected on Thursday after the Reserve Bank's Monetary Policy Committee (MPC)'s two-day meeting.

"We are sticking to a 50 point basis cut," said Mr Pienaar, adding that this is due to the limited space of manouvre by the Reserve Bank which has to consider the economy's growth.

"With the extent and duration of the global and local downturn remaining uncertain, the MPC will continue to cut interest rates in order to provide the domestic economy with some support against the global recession," said Nedbank.

According to Nedbank, they predict that the prime lending rate which currently stands at 12 percent will fall to 11 percent.

The decision on the interest rate that stands at 8.5 percent will be announced tomorrow.

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