Inflation hit three-year high, economists predict
April 23, 2007
By Nasreen Seria
Johannesburg - Consumer inflation probably accelerated by at least half a percentage point to its fastest pace in more than three years last month after the government raised petrol costs and food prices jumped, economists predicted ahead of the planned release of the data by Statistics SA on Wednesday.
The consumer price index (CPI), a measure of headline inflation, probably grew 6.2 percent year on year in March, up from an annual 5.7 percent in February, according to the median estimate of 18 economists surveyed late last week.
CPIX inflation, which excludes mortgage costs, was likely to have jumped to an annual 5.5 percent last month from 4.9 percent in February, economists said. CPIX probably rose 1 percent month on month in March, after falling 0.1 percent in February.
An annual rise of 5.5 percent in CPIX would be the highest since August 2003. The rate has stayed within the Reserve Bank's target range of between 3 percent and 6 percent since September 2003.
Petrol prices rose by 4.2 percent last month after crude oil surged in February and the rand weakened against the dollar, boosting import costs. The government fixes the prices of oil products every month based on the previous month's exchange rate, the spot price of crude oil and shipping costs.
Economists said a surge in food prices had also lifted inflation. The price of white maize, the country's staple food, has jumped 22 percent on the SA Futures Exchange this year as dry weather cut yields. Yellow maize, used in animal feed, has gained 8.7 percent in the same period. Food accounts for about a quarter of CPI.
Inflation may accelerate further after petrol prices rose by 11 percent on April 4 as oil prices surged and the government increased fuel taxes. Since then crude has dropped 2.6 percent in New York.
The Reserve Bank left its benchmark repo rate steady at 9 percent for a second consecutive meeting on April 12 after four interest rate increases last year helped curb spending. The bank expects CPIX inflation to stay at about 5.9 percent until the second quarter of next year.
Monica Ambrosi, an economist at Econometrix Treasury Management , said: "The next few inflation readings will be elevated" as fuel and food prices gain. "The Reserve Bank is worried, but they've taken a gamble."
Michael Kafe, an economist at Morgan Stanley in Johannesburg, said: "We've been quite aggressive in our forecast on food prices given what's happening to the maize price. We expect interest rates to remain flat for the rest of the year. Oil prices have come down since the last monetary policy committee meeting."
Reserve Bank governor Tito Mboweni said on April 12: "The less favourable outlook has been brought about primarily by petrol and food price increases. Domestic demand pressures and credit extension have remained strong with only tentative signs of moderation in response to the tighter monetary policy stance."
The rand fell as much as 2.1 percent to R7.405 to the dollar on March 28, the day Stats SA said inflation slowed to a seven-month low in February, reducing expectations that the central bank would raise interest rates. Since then the local currency has surged as the greenback has weakened, and was bid 4c stronger at R6.99 a dollar on Friday. - Bloomberg
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