While no one is yet mooting the possibility that CPIX (the consumer price index less mortgages) will overshoot its 3%-6% target, the figures are moving closer to the top end of the range.
Some analysts said this did not bode well for the interest rate outlook.
Annabel Bishop, group economist at Investec, said price pressures for the CPIX, which she forecast to come in at 5,1%, were arising from the annual increase in university fees, the 24c/l petrol price increase, and rising food price inflation due to the continuing drought.
“In addition, some price pressure from domestic workers’ wage inflation is likely to be seen in March’s data after Stats SA omitted to include the monthly contribution from this component in the previous month,” she said.
Although inflation has surprised on the downside in the past couple of months, Bishop’s forecast is low compared to some of her peers. According to the median estimate of 18 economists surveyed by Bloomberg last week, CPIX was widely expected to jump to 5,5% last month from 4,9% in February.
The producer price index, which will be released tomorrow, is also expected to rise, with Bishop forecasting a year-on-year figure of 9,4%.
“The rising international oil price and rand weakness are likely to exert some pressure on the imported producer price inflation, Bishop said.
“Food price inflation at the agricultural and manufacturing levels is expected to continue to push up the domestically produced commodities index.”
But if all goes according to plan, March would be the 43rd consecutive month in which inflation will have remained in its target band.
Razia Khan, regional head of research for Standard Chartered Bank, who expected CPIX to come in at 5,6%, said March was usually referred to as a busy survey month — on average, the month-to-month rise in CPIX tended to be higher than in many other months. This was partly because of the items that were surveyed in March, such as domestic worker costs (only measured twice a year), tobacco products and more.
But, as Bishop said, “worse-than-expected figures may spook fears of a June interest rate hike”.
Another economist, Johan Rossouw of Vunani Securities, said the fact that the figures would generally be worse than those of the preceding month should not be surprising, given the surge in global oil prices and the adverse price effects of the drought.
“In addition, the emphasis from an interest rate point of view should be on prospects for inflation 12 to 18 months hence, rather than short-term considerations. In our view, the inflation cycle is peaking, while the prospects for CPIX 12 months out are fairly benign,” said Rossouw. The next move in rates should be down — possibly as early as October this year, he said.
However, Rossouw’s view is not widely held. Many economists believe rates will either stay on hold or rise. Bishop believes rates will rise 50 basis points next month and NKC Independent Economists was leaning towards the same view. Khan was also expecting a rate hike in June.
“We think it’s going to take a bit more than a temporary ‘too-late-to-do-anything-about-it-anyway’ breach of the inflation target to get the (Reserve Bank) to move again. But factor in a little currency weakness — which we expect in the May, June period — and things could change. Hence, our view that we see one last rate hike in this cycle of 50 bps in June,” said Khan.
An interest rate increase would likely dampen the equity market’s run.
