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Articles: Softer food prices help take edge off inflation

Posted by admin on Thursday, March 30, 2006 - 08:02 AM

CONSUMER prices rose slightly below expectations last month, after a rise in fuel prices was offset by a moderation in the food component during the month.
Ayanda Shezi

Figures released yesterday by Statistics SA show that CPIX (consumer price index less mortgage costs) rose 4,5% year on year, from 4,3% in January. The Reserve Bank’s targeted measure of inflation rose 0,2% month on month. A Reuters poll of economists forecast a year on year rise of 4,6%. The mild inflation number would not be enough to persuade the Bank to trim interest rates further next month, analysts said, although a relatively strong rand is expected to keep inflation at bay. Economists also noted that any second round effects were absent so far — which is good news. International oil prices remain at high levels, economists said on Tuesday, which does not bode well for local fuel prices. Brent crude was quoted at $65,57 a barrel on Tuesday, up 0,9% from its previous close. The price of petrol is expected to increase by about 25c/l next month. Since the end of 2004, the petrol price has risen by about 80c/l. The current strength in the rand is seen as key to keeping inflationary fears at bay. “Strong commodity prices should continue to provide support for the rand, thus curbing the effects of inflation pressures from outside,” said Eskom treasury economist Kabelo Masike. He said the strong currency could also provide the Bank with an opportune time for the accumulation of reserves. The rand, which has strengthened to below R6 to the dollar this year, was changing hands at R6,31 to the greenback on Tuesday, 1,1% down from its previous close. NKC economist Hugo Pienaar said the inflation numbers were overshadowed by comments made by Reserve Bank governor Tito Mboweni in Parliament on Tuesday. “What is clear from the governor’s comments is that he believes there is little room for a further rate cut, which is in line with our expectations” said Pienaar. Strong consumer demand, and a healthy appetite for debt, are also likely to keep the Bank from loosening monetary policy further, economists said. “Consumer demand is expected to remain fairly healthy in 2006, especially given the further tax relief announced in the annual budget,” said Pienaar. Food prices rose by a less-than-expected 0,3% month on month, after climbing 1,2% during January. The transport component, which has a weighting of 15,3% in the CPIX basket of goods, was the main reason for the rise in prices, after rising 1,3% month on month. Goods inflation rose 4,8% year on year last month, while services inflation, which has remained stubbornly high in the past, fell to 4,0%, from 4,3% in January. In the three months to February, CPIX was up 2,6% (1,6%). The broadest measure of inflation, CPI, rose 3,9% year on year and 0,1% in the month, representing a mild slowdown from January. Investec economist Annabel Bishop forecasts that inflation will begin to subside from the second quarter of this year and then rise slightly towards year end, back to the midpoint of the inflation target range.

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