CPI remains unchanged at 3.7%

Wednesday, March 23, 2011

Pretoria - The Consumer Price Index (CPI) remained unchanged at 3.7 percent in February, Statistics South Africa (Stats SA) said on Wednesday.

"The headline CPI (for all urban areas) annual inflation rate in February 2011 was 3.7 percent. This rate was unchanged from January 2011. On average, prices increased by 0.7 percent between January 2011 and February 2011," said Stats SA. 

Higher insurance and healthcare costs were the main reasons for the monthly increase in prices.

The figure was much in line with market expectation.

Nedbank said it forecasted inflation will move gradually higher over the next four months on the rising global food and fuel prices. A firm currency and price sensitive domestic consumers will contain the increase to around four percent up in April.

"Thereafter, inflation is forecast to rise at a faster pace as stronger domestic spending helps producers and retailers to restore margins eroded by heavy discounting and rising labour costs," said Nedbank.

In the second half of the year, a softer rand and higher international food as well as other commodity prices are also expected to add inflationary pressures. At the end of the year, inflation is forecast to come around 5.7 percent close to the Reserve Bank's inflation target band of six percent.

Upside risks to the forecast, however, are above inflation wage increases, the sharper than expected depreciation of the rand, further oil price increases and persistently high global food prices.

The data comes as the central bank's Monetary Policy Committee (MPC) is deliberating whether to keep unchanged or raise interest rates. The MPC began its second two-day meeting of the year yesterday.

"The risks of a rate hike earlier than what we are currently anticipating have increased over the past month, with food, oil and other commodity prices continuing to rise. The Bank may opt to react pre-emptively, hiking rates in the second half of the year. 

"However, we believe that this would do little to contain inflation and risks curbing the economic recovery. As a result, the Reserve Bank is only forecast to raise interest rates in the first quarter of 2012," said Nedbank.

Investment Solutions economist Chris Hart said the MPC will likely keep rates as is at 5.5 percent -- its lowest in 30-years. The decision on rates will be made public tomorrow.

"If the rand remains strong, there will be no need for a hike this year," said Hart.

Since December 2008, the repo rate has been cut by 650 basis points.