South Africa’s annual CPI inflation slows to 5.3% in December, feeding hopes for rate cut

By bne IntelliNews January 21, 2015

South Africa’s annual headline consumer price inflation cooled to lower-than-expected 5.3% in December from 5.8% in November, mainly due to the global oil price slump, data from Statistics South Africa showed. Analysts had forecast inflation at 5.5%, according to a median consensus survey of 13 economists polled by Business Day. The lower reading is boosting hopes that the central bank may cut its repo rate at its policy meeting next week.

The average annual inflation for 2014 came in at 6.1%, in line with the central bank’s forecast, up from 5.7% a year earlier. It had hovered above the central bank’s 3%-6% target range in the period from April till August, mainly due the effect of a weak rand.

Compared to the previous month, consumer prices fell 0.2% in December after staying flat in November.

The annual core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, edged down to 5.7% last month from 5.8% in November. The monthly core inflation remained unchanged at 0.2%.

The sub-groups that contributed most to the headline annual inflation last month were housing and utilities (1.4pp the same as in November), food and non-alcoholic beverages (1.1pp, down from 1.2pp in November), and miscellaneous goods and services (1.1pp, up from 1.0pp in November). The contribution of the transport subgroup dropped to 0.3pp last month from 0.7pp in November, as its annual inflation rate declined to 1.7% from 4.2%. Within that group, petrol prices fell 5.5% y/y, reversing a 1.2% y/y growth in November.

Prices of food and non-alcoholic beverages fell 0.4% between November and December, pushing down the annual inflation rate to 7.2% from 7.6%.

According to SARB’s latest forecast from November, headline inflation should average 5.3% in 2015 and 5.5% in 2016. Core inflation is anticipated to average 5.7% this year, reaching a peak of 5.9% in Q1, and easing to 5.3% in 2016. The elevated level of core inflation suggests that the underlying inflation pressures persist.

However, markets are currently pricing in a slim chance for a rate cut next week amid easing inflationary pressures and continued economic growth headwinds, and after similar moves by other emerging market central banks, including Romania, India, Peru, and Turkey. The South African Reserve Bank (SARB), which hiked rates by a total of 75bp last year to curb a stubbornly high inflation and a rand depreciation, has repeatedly stated that rates will have to be increased further, with the timing depending on the evolution of inflation expectations, the speed of monetary policy tightening in the US and the domestic economic conditions.

  y/y inflation contribution to the y/y change in headline CPI m/m inflation
  Dec-14 Nov-14 Dec-14 Nov-14 Dec-14 Nov-14
Food and non-alcoholic beverages 7.2% 7.6% 1.1 1.2 -0.4% 0.6%
Alcoholic beverages and tobacco 7.6% 7.8% 0.4 0.4 0.0% 0.5%
Clothing and footwear 6.2% 6.2% 0.2 0.2 0.3% 0.6%
Housing and utilities 5.7% 5.8% 1.4 1.4 0.5% 0.0%
Household contents and services 2.2% 2.2% 0.1 0.1 0.1% -0.1%
Health 5.6% 6.1% 0.1 0.1 -0.5% 0.0%
Transport 1.7% 4.2% 0.3 0.7 -1.6% -1.2%
Recreation and culture 3.0% 2.8% 0.1 0.1 0.1% 0.3%
Education 8.7% 8.7% 0.3 0.3 0.0% 0.0%
Restaurants and hotels 8.6% 9.1% 0.3 0.3 0.3% 1.1%
Miscellaneous goods and services 7.1% 6.9% 1.1 1.0 0.1% 0.1%
Headline CPI 5.3% 5.8%     -0.2% 0.0%
Source: Staistics South Africa            

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