9% inflation fear may sway bank
January 31, 2008
By Tonny Mafu
Johannesburg - The Reserve Bank's targeted measure of inflation is now tipped to exceed 9 percent after increasing to 8.6 percent last month, raising the odds of yet another interest rate hike when the monetary policy committee next meets in April.
The central bank, which announces its latest decision this afternoon, has lifted rates by 400 basis points since June 2006 to fend off rising inflation fed by strong credit demand.
Data showed growth in credit extension slowed to an annual 21.5 percent last month from 22.6 percent in November. Growth in home loans fell to a nine-month low in December, an indication of how rate hikes are affecting consumers.
Although the central bank may regard slower growth in home loans as a good sign, relief is not guaranteed. Mortgages, the largest category of credit to the private sector, rose by a record R16 billion month on month in November. Last month home loans grew by R11.4 billion to R850 billion, up 24.1 percent from a year earlier.
Stanlib economist Kevin Lings said the level was still too high. "Consumers still do not appear to be in any significant financial distress, as reflected in the debt summonses as well as the insolvencies data," he said.
Despite the "scary numbers", Lings said the Reserve Bank could afford to leave the repo rate on hold today.
Econometrix's Azar Jammine agreed, saying the latest inflation data were "history" and attributable to petrol prices.
Statistics SA data showed that food (3.8 percentage points) and transport (1.7 percentage points) were the biggest contributors to CPIX (consumer inflation excluding mortgages).
Lings said he expected some of the food price pressure to dissipate during the year.
Absa Capital's Jeff Gable was more hawkish. "The message from inflation data is sufficiently poor for the bank to increase rates," given that its mandate was inflation targeting.
Ongoing power cuts would add to inflation pressures.
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