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SA February CPIX 0,4% lower than January    Article Date :10 Apr 2007 Comments from Absa. Although February’s CPIX inflation rate surprised, coming in at 4,9% year-on-year compared with 5,3% in January and headline inflation, which jumped to 6% y/y in January, declined to 5,7%, there is still upward pressure on the inflation, according to Absa. February’s inflation rates were much lower than the 5,2% and 6% expected by consensus (as surveyed by Inet Bridge) for CPIX and headline inflation respectively. On a monthly basis, CPIX declined by 0,1% on the back of the 23c/litre decline in the petrol price in February. As a result, the transport component subtracted 0,1 of a percentage point while the deceleration in food prices left the contribution by food flat. Headline inflation, which also declined by 0,1% over the month, slowed as a result of the 0,2 of a percentage point subtracted by the transport component. Alcoholic beverages, however, added 0,1 of a percentage point. Nevertheless, food inflation, which was Absa’s biggest concern, declined by 0,1% over the month, translating into a deceleration in prices on an annual basis to 8% year-on-year (8,6% in January). The monthly decline in food prices came after a deceleration in prices for meat, seafood, dairy products and other items was experienced. However, grain prices continue to rise, increasing from 0,9% m/m (7,6% y/y) in January to 2,4% m/m (9,2% y/y) in February. Positively, CPIX less food inflation slowed down from 4,2% y/y in January to 3,9% in February. Despite the lower inflation rate in February, Absa says concerns around the inflationary pressures are mounting. In March, petrol prices rose by 24c/litre while an increase above 60c/litre is possible in April. Combined with the acceleration in food prices in recent weeks, caused by below-average rainfall in maize producing regions, inflation in March is likely to come in just above the five percent level while a steeper increase is expected for April. “In April, we expect inflation to rise to above 5,5% y/y. In addition, March is a high survey month with items such as education fees, public transport tariffs and toll-gate fees being measured. “Furthermore, while the higher current account deficit recorded in the fourth quarter of 2006 of 7,8% of GDP may have been comfortably financed by capital inflows, the risk to a substantial re-pricing in the rand remains if capital inflows turn around. With most of the capital inflows of a short term nature, any negative news flow can cause capital to flee to safer markets (such as Japan), which will have cause the local currency to depreciate. “Moreover, consumer demand is still uncomfortably high as noted by January’s strong retail sales data, while private sector credit demand remains above 20% on an annual basis. As such, with the rand weaker and oil prices under renewed pressure, rising to around $67/bl overnight following increased uncertainty about the political outcome in the Middle East, the risk to inflation remains firmly on the upside. Absa warns that with incoming indicators pointing to a worsening in inflationary pressures, the SARB will find it tough to leave rates unchanged at its April 11/12 meeting. CLICK HERE TO RETURN TO THE MAIN NEWS PAGE