inflation going down

Tamlyn Stewart

Tamlyn Stewart

A falling fuel price and slowing food price rises helped consumer inflation continue its downward slide in December last year, in line with economists' forecasts.

CPIX (consumer price inflation excluding interest rates on mortgage bonds) declined for the fourth month in a row in December, slowing to 10,3percent from 12,1percent in November.

CPIX for last year as a whole was 11,3percent, compared to 6,5percent in 2007.

Economists said a 100 basis point cut in interest rates at the South African Reserve Bank's Monetary Policy Committee meeting next week could be on the cards.

Statistics South Africa said the annual increase in the CPIX for the historical metropolitan and other urban areas was mainly due to relatively large annual contributions in the price indices for food (+4,8percentage points), and fuel and power (1,2).

But with the price of fuel having fallen significantly towards the end of last year, and the re-weighting of the inflation basket this year, economists say inflation could subside to within the Reserve Bank's 3-6percent target range as early as the second quarter.

Statistics South Africa will release data for the new Consumer Price Inflation basket on 3 February. The weighting given to items in the basket will change depending on how much consumers spend on those items.

For example, food will carry less weight in the new CPI basket as the latest income and expenditure survey has shown that consumers are spending less money on food. New items like restaurants, fast foods and and funerals will also be added to the basket.

Barnard Jacobs Mellet economist Elna Moolman said that CPIX excluding mortgage bonds was "slightly better than expected" thanks to the fall in the fuel price, and a limited effect from the rand's weakness.

Moolman said that in the preceding months the weakness in the local currency had filtered into higher price inflation for personal care goods like soaps, and household consumables like polish.

"That was to a large extent due to pressure from rand depreciation [but] there was very little pressure from these categories in December. It would be very good news if there was less pressure from rand weakness.

"If you look at the Reserve Bank's statement it is their main concern too, so it would be very good news if it signals less pressure from the rand than we expected," said Moolman.

Danelee van Dyk, an economist at Standard Bank, said the inflation numbers were "certainly better than market expectations" and that consumers could look forward to a slowdown in food price increases:

"Food inflation is really looking as if it is easing. And there are also murmurs from food retailers that they are investigating high food price inflation." - Additional reporting by I-Net Bridge