SA consumer inflation stays flat

South Africa’s targeted consumer inflation was unchanged at 5,3% year-on-year in August compared with July, below market consensus, Statistics South Africa(Stasts SA) data showed on Wednesday.

Stats SA said inflation slowed more than expected to 0,2% month-on-month from 0,9% in July.

Economists surveyed by Reuters expected headline year-on-year inflation to accelerate to 5,5% while slowing to 0,4% on month-on-month basis.

The figure was lower than forecast.
“That’s a bit lower than we expected,” said Salomi Odendaal, economist at Citadel. “We do expect inflation to increase gradually towards the end of the year.

“It’s obvious that demand is still very much on the weak side and because of that, businesses can’t easily increase prices. We also expect pressure from commodity side and food prices and the wage increases that are still above inflation, but at least this number shows CPI (consumer price index) is not growing faster than we expected.

“It’s not impossible they would cut rates, but we do expect rates to stay low for a while.”

Inflation has been inside the central bank’s target of between 3% and 6% since February 2010, but has risen since hitting a five-year low of 3,2% in September 2010.

The central bank has left the repo rate unchanged at 5,5% this year, after cutting rates by 650 basis points to 30-year lows between end-2008 and end-2010.

Reserve Bank governor Gill Marcus expects inflation to increase gradually and briefly pierce the upper end of its band towards the end of this year and to peak at 6,3% in the first quarter of 2012.

The main driver of inflation has been transport and food costs and the Reserve Bank has previously said it would not increase rates only due to cost pressures such as these.

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