Cellphones and petrol take heat out of inflation
September 23, 2009
By Ethel Hazelhurst
Prices of cellphone handsets and petrol took some of the heat out of August's inflation numbers, while electricity, television licences, coffee and tobacco kept overall inflation above the Reserve Bank's 3 percent to 6 percent target range.
Statistics SA said yesterday that the consumer price index (CPI) rose 6.4 percent year on year last month, in line with economists' forecasts and down from 6.7 percent in July.
The figure is the lowest since March 2007, when CPI first broke above the ceiling of the target range to 6.1 percent. It is less than half the peak of 13.7 percent in August last year.
Two major items in the index moved in different directions: electricity with a weighting of nearly 2 percent rose 26 percent, following Eskom's tariff hike; but petrol with twice the weighting fell more than 26 percent, because crude oil prices were lower than in the same period last year. Unfortunately the combined effect of a number of smaller items, which continued to rise at double-digit rates, counteracted the benefits of lower fuel prices.
However, food price inflation, which has been driving inflation higher for three years, is finally subsiding, due to falling food prices at the agricultural level. The food item in CPI rose 6.8 percent last month, down from 16.1 percent in January. On a month-on-month basis, some prices have started falling, including bread and cereals, after months of falling grain prices.
Standard Bank economist Danelee van Dyk said: "Rand strength is currently exerting pressure on retailers to lower their selling prices." In other words, competition from cheap imports is forcing domestic producers to moderate the rate at which they hike prices.
Van Dyk said that disinflation (lower inflation) would become "entrenched" over the following months and inflation could "temporarily kiss the 6 percent ceiling in October".
However, she points out that favourable base effects will soon be falling out of the figures - a sharp upward move last year provides a high base for a comparison with current prices. "Today's reading marks the one-year anniversary of the peak in the inflation cycle. As such, the favourable high base will soon peter out, marginally lifting the inflation profile towards the 7 percent region in December and January."
Jaanre Fourie, the economic analyst at Metropolitan Asset Managers, made a similar point. She said this could be seen already in the transport category - prices fell 3.4 percent month on month in July but only 2.7 percent in August.
September's figure will capture the effect of a 36c a litre increase in petrol prices, after a 21c price cut last month.
Van Dyk said that inflation would prove "relatively sticky" next year because of the "spillover effects of high electricity prices and other input costs" and attempts by producers and retailers to restore profit margins.
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