december cpi up 6,3%

DECEMBER'S year-on-year consumer inflation spike from 5,8pecent in November to 6,3percent, which fell outside the Reserve Bank's target band, was expected, analysts said yesterday.

Statistics South Africa released the latest consumer price index (CPI) data for December, revealing inflation levels that were well under control, according to observers.

The CPI increase to 6,3percent was due to the base effects of low fuel prices in December 2008, said Nedbank economist Carmen Altenkirch.

"Inflation is expected to be back within the target range (6 percent) by March this year. Weak household demand, combined with the current strength of the rand, continued to put downward pressure on durable and semi-durable goods," she said.

While the price for most goods was well within the average overall inflation level of 7,1 percent Electricity and other fuels rose by a hefty 23,4percent in December alone.

Food and non-alcoholic beverages inched up a modest 3,6percent while alcoholic beverages and tobacco spiked by 11,3percent despite the recession.

Altenkirch added: "The risk to inflation remains on the cost-push side, with the threat of Eskom's price hikes the key danger. The steep 35 percent increase, if granted, would exert upward pressure on inflation and could see inflation heading close to the target band depending on the extent to which inflation moderates in the early part of next year."

Tendani Mantshimuli, Liberty economist said the electricity tariff hike would not be less than 30percent despite the Reserve Banks recent forecast of a 25percent hike.

"Maybe the Reserve Bank knows something we don't, but Eskom needs funding," she said, "However oil prices may not fluctuate that much, but that depends of the strength of the rand and the ability to import oil cheaply."

She said food inflation would come down further and that average consumer inflation for 2010 would be around 5,5percent.

"We could even see inflation coming down below 5percent at some point," she said.

Unlike Mantshimuli who had forecast a higher inflation in December, Brait economist Collen Garrow was expecting inflation to remain at 6percent.

"It's already outside of the target zone," Garrow said, "But from what [Reserve Bank governor] Gill Marcus said, we'll be within target in two months' time."

He said there was still scope to cut interest rates further as has been advocated by trade unions and a minority of economists.

He said the high interest rates had slowed South Africa's economic recovery compared to countries which began slashing immediately as the economic downturn hit.

Garrow said: "South Africa, like many other economies is driven by consumer demand. High interest rates, combined with jobs losses (estimated at 1million last year) have slowed recovery."