inflation surprises remain

THE possibility of near-term positive inflation surprises remains, given the rand's continued strength, but beyond the middle of next year, the outlook is decidedly more worrying, according to economists.

THE possibility of near-term positive inflation surprises remains, given the rand's continued strength, but beyond the middle of next year, the outlook is decidedly more worrying, according to economists.

"We thus remain comfortable with the view that rates have bottomed and that the next likely move will be up," said Cadiz economist Adenaan Hardien.

"Although consumer inflation will likely breach the target in December, the latest report again confirms the possibility of near-term positive surprises. Inflation is expected to move higher due to the unwind of positive base effects, a 27 cents per litre petrol price hike and the inclusion of the bi-annual surveys of rentals and owner's equivalent rent," he said.

"We expect consumer inflation to peak in January and slip back into target by the end of the first quarter. But we expect consumer inflation to again breach the target from the fourth quarter of 2010. This will largely be the result of the inclusion of residential electricity tariff adjustments from July."

Consumer inflation fell to 5,8percent in November, staying within target for the second month. CPI fell back into the 3-6percent target band in October for the first time in more than 2½ years, but anticipated power tariff hikes next year and base effects could help push inflation up, reducing the likelihood of more interest rate cuts.

November's annual CPI reading marked a slowdown from 5,9percent in October, Stats SA's data showed on Tuesday. On a monthly basis, CPI was flat in November and October. - Reuters and I-Net Bridge

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