Inflation will edge higher in the coming months amid steep increases in administered prices such as petrol‚ raising the prospect of an interest rate hike before year-end.
Two Reserve Bank deputy governors warned at separate events this week rising oil prices and a weak rand pointed to the likelihood of higher inflation.
But both Francois Groepe and Daniel Mminele also said a pause in interest-rate hikes was warranted for now – indicating rates could still be kept on hold when the monetary policy committee (MPC) meets in three weeks’ time.
But the long-term prospects are uncertain.
The 96c/l increase in the petrol price this month alone may add “approximately 0.6 percentage points” to headline inflation‚ Groepe said at a function organised by law firm Webber Wentzel on Wednesday.
“The underlying measures of the CPI (consumer price index) remain stable but elevated‚ which points to fairly persistent underlying inflationary pressures‚” he said.
Oil prices have risen from lows of $45 a barrel to about $60 a barrel‚ ending months of petrol price decreases and inflation deceleration. Inflation slowed gradually from highs of 6.6% in June last year to 4.4% year-on-year in January.
Mminele said at a bank function on Tuesday night the monetary policy authorities needed to be vigilant in an environment characterised by uncertainty over movements in the oil price. This made policy-makers “vulnerable to a correction or reversal in prices from current levels”‚ he said.
Barclays Africa economists said Mminele’s speech was “unambiguously hawkish” and indicated the MPC did not see any scope for interest rate cuts.
Inflation would accelerate not only due to higher petrol prices but also because of steep fuel levies that come into effect next month and increases in electricity tariffs in the middle of the year‚ said Stanlib chief economist Kevin Lings.
He also said the bank could raise rates towards the end of the year but this would depend mainly on two factors: whether inflation rose to the top end of the 3%-6% target band, and if expected higher interest rates in the US led to significant rand weakness.
The MPC raised the repo rate by a cumulative 75 basis points last year and kept it unchanged at 5.75% in January.
The MPC had emphasised then that maintaining interest rates at current levels would require a sustained decline in the inflation rate and the usually sticky inflation expectations.
Groepe reiterated the MPC’s view there was not much more lower interest rates could do to boost economic growth, which slowed from 2.2% in 2013 to 1.5% last year – the second-lowest rate in 16 years. — BDlive
Economists warn mon rising inflation due to high costs
Inflation will edge higher in the coming months amid steep increases in administered prices such as petrol‚ raising the prospect of an interest rate hike before year-end.
Two Reserve Bank deputy governors warned at separate events this week rising oil prices and a weak rand pointed to the likelihood of higher inflation.
But both Francois Groepe and Daniel Mminele also said a pause in interest-rate hikes was warranted for now – indicating rates could still be kept on hold when the monetary policy committee (MPC) meets in three weeks’ time.
But the long-term prospects are uncertain.
The 96c/l increase in the petrol price this month alone may add “approximately 0.6 percentage points” to headline inflation‚ Groepe said at a function organised by law firm Webber Wentzel on Wednesday.
“The underlying measures of the CPI (consumer price index) remain stable but elevated‚ which points to fairly persistent underlying inflationary pressures‚” he said.
Oil prices have risen from lows of $45 a barrel to about $60 a barrel‚ ending months of petrol price decreases and inflation deceleration. Inflation slowed gradually from highs of 6.6% in June last year to 4.4% year-on-year in January.
Mminele said at a bank function on Tuesday night the monetary policy authorities needed to be vigilant in an environment characterised by uncertainty over movements in the oil price. This made policy-makers “vulnerable to a correction or reversal in prices from current levels”‚ he said.
Barclays Africa economists said Mminele’s speech was “unambiguously hawkish” and indicated the MPC did not see any scope for interest rate cuts.
Inflation would accelerate not only due to higher petrol prices but also because of steep fuel levies that come into effect next month and increases in electricity tariffs in the middle of the year‚ said Stanlib chief economist Kevin Lings.
He also said the bank could raise rates towards the end of the year but this would depend mainly on two factors: whether inflation rose to the top end of the 3%-6% target band, and if expected higher interest rates in the US led to significant rand weakness.
The MPC raised the repo rate by a cumulative 75 basis points last year and kept it unchanged at 5.75% in January.
The MPC had emphasised then that maintaining interest rates at current levels would require a sustained decline in the inflation rate and the usually sticky inflation expectations.
Groepe reiterated the MPC’s view there was not much more lower interest rates could do to boost economic growth, which slowed from 2.2% in 2013 to 1.5% last year – the second-lowest rate in 16 years. — BDlive
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