Hope for early Christmas gift from the SARB, Newsline

JOHANNESBURG – Inflation remained muted in August on lower electricity tariffs and weak demand, raising hopes that the country may receive an early Christmas present when the SA Reserve Bank (SARB) convenes its last Monetary Policy Committee (MPC) meeting for the year next month.

Data from Statistics South Africa (StatsSA) yesterday showed that the consumer price inflation eased slightly in August, falling to 3.1percent from 3.2percent in July.

PPS Investment’s Luigi Marinus said the print may force SARB’s hand in cutting interest rates as inflation had muted even on goods which experienced increases well above in the top end of the target band in the past.

“This latest print showed that inflation has remained muted with even water and other services and electricity and other fuels showing a somewhat modest 6.1 and 6percent year-on-year increase respectively,” Marinus said. “With inflation remaining low, the MPC may find it difficult to not reduce short interest rates the next time they meet.” Earlier this month, the SARB left the door open for a final rate cut before the end of the year after two members of the MPC voted in favour of a 25 basis point rates cut.

This was despite the decision to keep the repo rate on hold at 3.5percent as three members of the MPC voted in favour of maintaining the current level of interest rates.

The MPC, which has cut rates by a collective 300 basis points since January to mitigate against the Covid-19 impact, will have its final meeting for the year from November 17 to 19.

The headline consumer inflation remained within the SARB’s target range of 3 to 6percent from below the bottom end of the band earlier this year. Core inflation, which strips out the more volatile energy and food components, remained at multi-year lows at 3.3percent in August versus 3.2percent in July.

On a month-on-month basis, the consumer price index was at 0.2percent in August from 1.3percent in the previous month, and slightly lower than the average monthly change of 0.3 percent over the past year.

StatsSA said all other groups of consumer goods showed no price increase over the month.

Tickets to sporting events were the only basket item that were still banned from sale in August since lockdown level 1 was instituted.

However, there were concerns about the trajectory of inflation as previous print showed an increase from 2.2 to 3.2percent.

Investec’s Kamilla Kaplan said the moderate slow in inflation related mainly to lower electricity tariff inflation.

“Specifically, electricity price inflation rose 6.2percent in August versus the 12percent increase in August 2019,” Kaplan said.

“The modest rate of core inflation reflects subdued activity in the property market and of the domestic recessionary conditions which impeded the ability of businesses to pass on price increases to consumers.”