CPI rises to 5% in June

Wednesday, July 20, 2011

Pretoria - The Consumer Price Index (CPI) rose to 5% in June in line with market expectation, Statistics South Africa said on Wednesday.

"Consumer prices rose by 0.4% month-on-month and 5.0% year-on-year in June after increasing by 0.5% month-on-month and 4.6% year-on-year in May. This was in line with the market consensus but slightly higher than our forecast of 4.8% year-on-year," Nedbank economists said.

According to Stats SA, the food and non-alcoholic beverages index increased by 0.5% between May and June 2011. The annual rate increased to 7.1% in June 2011, from 6.1% in May 2011. The alcoholic beverages and tobacco index decreased by 0.1% between May and June 2011, while the housing and utilities index increased by 1% between May and June 2011 due to an increase in actual rentals for housing.

In the coming months, inflation is expected to rise.

"Past increases in international food and fuel prices are still expected to push inflation to the upper limit of the target band in the final quarter of 2011. Much now depends on whether global food and fuel prices, which appear to have halted their upward trend, will ease off in the coming months, whether second-round effects remain dormant and the rand's future course," said Nedbank.

The sharp electricity tariff hikes and municipal rates are other factors that will contribute to higher inflation.

"However, lower fuel prices following significant declines in petrol and diesel prices in July will help to moderate the rate of increase in overall prices, but this is expected to be only temporary. Today's CPI number was within expectations and is not likely to have a major impact on deliberations at the MPC meeting, with the focus more on the dangers of recent above-inflation wage settlements."

The Reserve Bank's Monetary Policy Committee began its meeting to decide on interest rates yesterday.

Nedbank expects the central bank to keep interest rates unchanged at 5.5%.

"We still expect the MPC to maintain its wait-and-see policy until there is greater evidence of more generalised inflation, either due to second-round effects from higher commodity prices or price pressures emanating from firmer domestic demand.

"Latest statistics on local and international growth have not been encouraging, and we would therefore still expect the Reserve Bank's MPC to delay its first hike until early 2012, as an early interest rate increase would risk curbing the economic recovery," said Nedbank.