FINANCE: MPC Expected to Be More Tolerant Of CPI Breach
Recent Gauteng Business News
June inflation printed at 6.3%, slightly below our forecast of 6.4% y/y. CPI was up 0.6% m/m, but this acceleration was ascribed to the 52c per litre fuel price increase and a 5.1% hike in air fares at the end of May. Goods inflation continued to climb from 6.6% in May to 6.7% y/y in June, while services also climbed 0.1% to 5.8% says Jason Muscat.
Food inflation (particularly oils, bread and cereals) remains the main culprit in keeping inflation above the South African Reserve Bank’s (SARB) upper target range, but we expect a better agricultural season next year to see food CPI start decelerating toward the end of the year: food inflation moved to 11% y/y from 10.8% in May.
While inflation remains above target, we expect the Monetary Policy Committee (MPC) to be more tolerant of the breach in light of recent rand strength, a lower oil price (August fuel price relief), and expectations of easing food inflation pressure. Moreover, the potential for further monetary policy easing in some developed markets, and the weak domestic growth environment should see the SARB keep rates on hold at tomorrow’s announcement.
Business News Sector Tags: Finance|