No change expected in inflation for May
June 25, 2007
By Gordon Bell
Johannesburg - The country's main inflation gauges probably stalled last month after a race higher in the previous two months, but credit growth may have edged back up towards record highs.
The annual increase in the key inflation measure, consumer price inflation less mortgage costs (CPIX), which is due on Wednesday, is expected to be steady at 6.3 percent year on year last month, according to a poll of 13 economists.
It surged to a near four-year high in April, breaking through the central bank's 3 percent to 6 percent target range after a similar leap to 5.5 percent in March, largely due to fast-rising food and fuel costs.
Reserve Bank governor Tito Mboweni warned earlier this month that pressures were becoming more broad based, a trend that prompted a rise in the key repo interest rates by 0.5 percentage points to 9.5 percent. Many analysts expect another rise in August.
Continued high inflation would probably prompt the Reserve Bank "to increase interest rates again this year, either at the next meeting in August or possibly in December", said Nico Kelder, an economist at Efficient Group.
Food and oil prices remain a concern, while energy costs are likely to add to pressures in the months ahead.
The central bank has raised its forecasts amid a deteriorating outlook, predicting CPIX will remain outside the band for most of the next 12 months, then ease late next year.
"Despite a hike in domestic fuel prices, month-on-month inflation should moderate slightly relative to April," said Standard Chartered Africa economist Razia Khan.
"Nonetheless, as South Africa enters the winter months, further pressure on electricity prices, and inflation, is anticipated."
Eskom is struggling to keep up with fast-growing demand for power. It plans costly refurbishments to patch up ageing infrastructure and new plants to meet future demand, raising the prospect of steep tariff increases.
Overall consumer inflation, which is also due on Wednesday, is forecast unchanged at 7 percent year on year for last month. Month-on-month CPIX inflation is expected to slow to 0.6 percent from 1.2 percent in April.
Producer inflation, due on Thursday, probably ticked up to 11.2 percent year on year from the previous month's four-and-a-half-year high of 11.1 percent, according to the poll.
Credit growth is forecast as accelerating to 25.6 percent year on year from 25.12 percent, adding to central bank worries that consumers are bent on racking up debt. - Reuters
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