inflation takes a dip

COSATU's spokesperson Patrick Craven at a press conference. Pic: Tebogo Letsie 14/06/2006. Unknown
COSATU's spokesperson Patrick Craven at a press conference. Pic: Tebogo Letsie 14/06/2006. Unknown

CONSUMER price inflation returned to the 3 to 6percent target band for the first time in more than two-and-a-half years in October - a dip that might be temporary as higher power prices loom.

CONSUMER price inflation returned to the 3 to 6percent target band for the first time in more than two-and-a-half years in October - a dip that might be temporary as higher power prices loom.

Stats SA said yesterday that annual headline CPI slowed in line with expectations to 5,9percent in October from 6,1percent in September.

Headline inflation has stayed above the Reserve Bank's target band since piercing it in March 2007, peaking at close to 14percent in August last year before gradually coming down. As inflation has slowed, the central bank has reduced interest rates by 5percentage points between December 2008 and August this year, totally unwinding increases in the two years to June 2008.

But analysts said the dip back into the band could be temporary.

"Obviously it creates some optimism in terms of consumer spending. But we should be a bit wary that the annualised rate could climb towards year-end again due to the base effects," said Christie Viljoen of NKC Independent Economists.

The Reserve Bank has said it expects inflation to fall within the target band on a sustainable basis by the second quarter of 2010 and sees high electricity price rises as the main long-term risk to the outlook.

State-owned electricity firm Eskom will submit a revised request for tariffs after strong criticism of its initial plan to raise prices by 45percent a year over the next three years.

Cosatu spokesperson Patrick Craven said the latest figures reinforced the union federation's argument that the main threat to the economy was unemployment and not inflation. - Reuters, additional reporting by Kea Modimoeng

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