Lower food prices will help bring inflation within target

Metropolitan Asset Managers believe that lower food inflation at producer level - displayed by the producer price index - should start feeding into the CPI numbers, even though it is taking much longer than initially expected.

Metropolitan Asset Managers believe that lower food inflation at producer level - displayed by the producer price index - should start feeding into the CPI numbers, even though it is taking much longer than initially expected.

Jaanre Fourie, pictured, a MetAm economic analyst, said yesterday that she remains optimistic that consumer inflation will continue its downward path - despite the uptick in February.

"Admittedly, the higher-than-expected inflation numbers in the first two months of this year have slightly lifted our inflation trajectory," she said.

"A decline in food prices at consumer level will weigh heavily in bringing inflation within the target band," she added.

She said she believes the monetary policy committee (MPC) has recognised its role in stabilising the local economy and this will continue to be a crucial factor in forthcoming MPC meetings.

"This dovish tone is appropriate considering that the economy's on the brink of a recession.

"The increasing output gap should also help to ease inflationary pressures in the medium term as local demand remains at very weak levels."

Fourie noted that some concerns have been raised that the exchange rate might weaken on the back of aggressive monetary easing.

"However, we believe that the importance of South Africa's interest-rate differential with the rest of the world has clearly shifted to the background in an environment of risk aversion," she said.

"Even though inflation disappointed, we still believe the Reserve Bank has some room to cut interest rates further." - I-Net Bridge

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