Friday, 24 June 2011

Inflation up but interest rates steady

The consumer inflation rate was higher than predicted, rising to 4,6% in May and up from 4,2% in April but economists have not yet revised predictions on a hike in interest rates by the Monetary Policy Committee of the South African Reserve Bank.

SARB’s repo rate was cut to just 5,5% in November last year, dropping interest rates for consumers to a record low of 9%. A spike in interest rates will place considerable pressure on property owners, as many of them try to downscale their costs in orderto meet their monthly commitments.

Elna Moolman, an economist at BJM Renaissance, says that the latest data is unlikely to mean that the interest rates will start to rise earlier than predicted even though the SARB has revised its estimates for higher inflation over the coming months.

The figures indicate that the inflation rate will remain within the Bank’s target range of between 3% and 6% for the rest of this year but will increase to about 6,3% early next year when rates are expected to be hiked.

The spike in inflation rates has been prompted by higher-than-expected increases in food prices, which are up 1,7% month-on-month. Food prices have a weighting of about 15% in the price basket used to calculate the average inflation rate and these rose by 6,3% year-on-year.

Moolman says that adverse weather conditions prevailing throughout the country, coupled with a fall in output from the agricultural sector were contributing to higher food prices.

Higher electricity prices, along with a sharp increase in fuel prices had also contributed to the spike in the inflation rate. Electricity prices have risen by 19% in May compared with a year ago.

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