No uncontrolled inflation yet, but the repo rate is likely to rise – The Citizen

Inflation hasn’t escaped us yet, but Statistics SA’s Wednesday announcement that the inflation rate remained unchanged at 5.9% in April compared to March will increase the repo rate, according to economists. Economic research group Oxford Economics Africa says that although price pressures have increased in recent months, high inflation has not been a major headache for South African policymakers compared to advanced economies. The group expects inflation to average 5.9% this year compared to 4.5% in 2021. “Although headline inflation has remained above the midpoint of the 3% inflation target range -6% of the South African Reserve Bank (Sarb) …

Inflation hasn’t escaped us yet, but Statistics SA’s Wednesday announcement that the inflation rate remained unchanged at 5.9% in April compared to March will increase the repo rate, according to economists.

Economic research group Oxford Economics Africa says that although price pressures have increased in recent months, high inflation has not been a major headache for South African policymakers compared to advanced economies.

The group expects average inflation of 5.9% this year compared to 4.5% in 2021.

“Although headline inflation remained above the midpoint of the South African Reserve Bank (Sarb) 3% -6% inflation target range for the twelfth consecutive month, it has not exceeded the upper limit since March 2017.”

They point out that elsewhere in the world, advanced countries and economies in particular are struggling with multi-year high inflation.

“We expect domestic inflation to rise and continue to believe that the upper end of the inflation target range will penetrate in May.”

READ ALSO: Inflation remains at 5.9% in April, with food and transport costs giving cause for concern

Accumulate the price of gasoline

Oxford Economics Africa says the Rand depreciated sharply towards the end of April, plunging to its weakest level from November 2021 to May.

Add to this the fact that crude oil prices continue to trade at high levels and that the R1.50 fuel tax will be reinstated at the end of May, which implies that a substantial increase in the price of fuel is planned for June. .

Therefore, the group expects the annual CPI to peak at the end of the second quarter and gradually decline thereafter.

“Sarb’s Monetary Policy Committee (MPC) will only meet once in the second quarter and we believe the May meeting is well timed for a broader 50 basis point interest rate hike, compared to the incremental 25 basis points for which members have opted for in recent years. “

The group points out that South Africa is not experiencing uncontrolled inflation and that it leaves room to follow a gradual cycle of hiking. Looking further ahead, Oxford Economics Africa predicts that consumers will continue to face high pressures on the cost of living.

Luigi Marinus, portfolio manager of PPS Investments, says that although inflation has remained within the target range, it has been a year since it was recorded below the midpoint.

“With inflation rising around the world, South Africa has not been immune.

“The SARB was ahead of the curve by raising interest rates, although inflation remained within the target range, but the recent rate hike in the US and the expectation of further hikes are likely to be included in the SARB resolutions, which will likely result in a further interest rate also rising in South Africa ”.

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No uncontrolled inflation

Marinus says that so far the SARB has done well to keep the CPI at a reasonable level and even if it does breach the high end of the range, runaway inflation seems unlikely thanks to the active approach of the SARB.

Chifi Mhangom chief economist at the Don Consultancy Group, says that although inflation is unchanged, underground pressures remain high, as illustrated by the high costs of food and transportation.

He also points out that the annual nominal inflation rate around the world remains high even in countries like the United States, where the annual inflation rate slowed to 8.3% in April from a 41-year high of 8.5. % in March.

“The inflation rate in the US is unlikely to drop to pre-Covid levels anytime soon and will remain above the Fed’s 2% target for long as supply disruptions persist, with energy and genders prices that remain high “.

The annual inflation rate in the euro area is also climbing to a new all-time high of 7.5% in April from 7.4% in March as the war in Ukraine and sanctions on Russia continue to drive prices up. of raw materials. The inflation rate is now more than three times higher than the ECB’s 2% target, he says.

READ ALSO: Johnson of the UK pledges action against rising cost of living

inflation in other countries

“Among the BRICS countries, China’s annual CPI accelerated to 2.1% in April 2022 from 1.5% in March, the highest reading since November 2021, amid logistical disruptions caused by the tough Covid measures.

“Food prices have risen for the first time in five months, with an inflation rate of 1.9%, the highest since October 2020”.

The annual inflation rate in Brazil increased to 12.13% in April from 11.3% in March, marking the eighth consecutive month of double-digit inflation rates and the highest since October 2003. Annual inflation in Russia further climbed to 17.8% in April from 16.7% in March 2022, the highest reading since January 2002.

CPI in India rose 7.8% in April, the highest since May 2014, with food inflation accelerating for the seventh consecutive month to a new high of 8.4% since November 2020.

Mahango says that as the rate of inflation continues to rise, advanced economies are taking a more restrictive approach to monetary policy by raising interest rates, such as the US Federal Reserve raising the target for the rate on funds. feds by half a point to 0.75% -1% during the May meeting.

This was the second consecutive rate hike and the highest hike in borrowing costs since 2000, with the central bank warning of further hikes of 50 basis points in the next two meetings.

“We expect a similar approach from Sarb amid soaring inflation.”