CPI likely to remain within target range

Tuesday, March 23, 2010

Pretoria - The Consumer Price Index (CPI) used to measure inflation is likely to fall within the Central Bank's target band in February, say economists.

Last month CPI for January came in above the target range at 6.2 percent year on year.

"We are forecasting that it will come in at 5.5 percent which is lower than market expectations," said Nedbank economist Carmen Altenkirch on Tuesday.

Market consensus is that CPI will fall to 5.9 percent when Statisitics South Africa (Stats SA) releases the figures for February earlier than normal tomorrow.

"We are going to see continued moderation of semi-durable goods. We still have weak domestic demand as well as the impact of a stronger Rand," explained Altenkirch.

Standard Bank senior economist Dr Johan Botha said it was likely to come in at 5.9 percent.

"Inflation is not as bad as initially forecasted and the electricity tariffs came in lower than expected," he said.

Last month Eskom was granted a 24.8, 25.8 and 25.9 percent tariff increase for the periods 2010/11, 2011/12 and 2012/13.

Standard Bank expects CPI to come in between 5 and 5.5 percent for the rest of the year.

Wednesday's figures will be followed by the Reserve Bank's Monetary Policy Committee's second (MPC) meeting for the year.
At their last meeting in February the seven member committee decided to keep the repo rate unchanged at 7 percent. The bank has cut the repo rate by 500 basis points from December 2008 to August 2009.

Both economists predicted that the bank will keep the repo rate unchanged.

"We are still expecting it to remain unchanged. Inflation is not going to come down significantly so there is limited space for movement. Rates are likely to remain steady," said Altenkirch adding that a hike in the repo rate is likely in the second half on 2011.

Stats SA is also due to release the Producer Price Index (PPI) figures for February on Thursday.

PPI in January rose by 2.7 percent year-on-year from 0.7 percent year-on-year in December. Economists predict PPI will rise to 3.8 percent year-on-year in February due to higher commodity prices.

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