Ayanda Shezi

Economics Correspondent

CONSUMER inflation continued to surprise on the downside last month, as a relatively stronger rand helped suppress any pressures emanating from rising fuel prices.

Eonomists said yesterday the outlook for inflation remains within the Reserve Bank’s 3%-6% target, however, with growing concerns about SA’s current account deficit, strong credit growth, volatility in oil prices, and a slightly weaker rand, monetary policy easing is unlikely to occur this year.

Data released yesterday by Statistics SA show that CPIX (consumer price index excluding mortgage costs) rose 3,7% year on year last month, down from 3,8% in March. Prices were up 0,4% month on month.

Kagiso Securities economist Elize Kruger said yesterday that “although the inflation outlook remains favourable, the probability of a pre-emptive hike in interest rates has increased, given more pronounced risks to the outlook”, but the timing of a possible hike remained difficult to forecast.

“The Bank will probably take a wait-and-see approach and further assess the situation before acting.”

Standard Bank economist Elna Moolman said the Bank would at its next monetary policy committee meeting next month look closely at the Bureau for Economic Research’s inflation expectations survey for the second quarter of this year.

“While (the inflation expectations survey is important because of its impact on wage negotiations, it will this time receive even more attention as the Bank will scrutinise it for any indications that it is reacting to higher petrol prices.”

The main contributors to the year-on-year increase in CPIX are transport, food and rent costs.

The petrol price rose 21c/l last month, driving the transport component 1,5% higher.

Following the 39c/l increase this month, and the expected 30c hike next month, fuel prices will continue to make a large contribution to CPIX in coming months, particularly as the rand, which has helped keep second-round inflationary pressures at bay, has weakened over the past two months.

“Overall, the inflation outlook remains favourable, but it is worth highlighting some worrying trends that have emerged,” said NKC economist Hugo Pienaar.

“Perhaps of most significant is that the rand has been under some selling pressure in recent weeks.”

If this continued, he said, it would have a negative effect on price pressures.

“If the rand continues to weaken, these prices could start to rise and if oil prices remain elevated the economy could be hit by widespread inflationary pressures,” Pienaar said.

The rand was trading at six-month lows of R6,63 to the dollar yesterday, while Brent crude oil was $70,20 a barrel.

The rand has been vulnerable to a recent weaker gold price and a sell-off in emerging markets.

In the three months to April, CPIX was up 4,8%, compared with 4,1% in the previous three months.

Food prices as well as rent costs added 0,1 of a percentage point to CPIX.

Services inflation has remained unchanged at 3,5% year on year, and goods inflation slowed to 3,9% (4,1%).

Headline inflation, the broadest measure of inflation, declined to 3,3% year on year, and 0,5% in the month.