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Thursday, October 1, 2009
Down trend intact

The consumer inflation data confirms that the decelerating trend remains intact, but that the level at which prices are rising remains a burden to households’ budgets. According to Efficient Group, the July figures show that prices still continue to accelerate on a broad front, with nine out of the 12 categories rising above 6.0%. Consumer prices excluding food, fuel and electricity costs, remain high as an increase of 7.7% y/y (June: 7.5%) is recorded during July 2009, one percent in excess of the headline inflation figure.

Food and non-alcoholic beverages as well as household utilities, remains the largest upside drivers of inflation both increasing with more than 8% y/y. Amongst all the subcategories, the highest price rises were recorded by hot beverages (+26.4% y/y), electricity and other fuels (+27.4%) and recreational and cultural services (+20.3%). On the downside, consumer price deflation was experienced by petrol (-26.3%), private transport operation (-19.9%), telecommunication equipment (-10.5%) and oils and fats (-9.2%).
Food and Non-alcoholic beverages (+8.3% yly) remained the item, placing most pressure on the consumer’s pocket, says Efficient Group. “An interesting development is that unprocessed foods (+8.2% yly) are still rising more than processed foods (7.0%) for this year, keeping in mind that this situation was reversed for most of 2008,” it adds. Some food items (with the exception of oils and fats) rose by double digits while others started to record single digit value values. The steepest increases were recorded by vegetables (+14.4%), sugar, sweets and dessert (+12.0%) and fish (+11.3%).

The largest CPI category is housing and utilities, 22.5% of CPI basket. And this item was the second largest contributor to overall consumer price pressure during July, rising 8.2% y/y, according to its analysis. Included in this category, is the largest sub-category, namely Owners’ equivalent rent (which replaced the interest on mortgage bonds item). “This item makes up almost half of the housing and utilities item and it is welcome to see it rising by 4.8% yly — well below the inflation target,” says Efficient Group.  Other sub-categories which continue to rise strongly include maintenance and repair (+13.0%) and electricity and fuels (+27.4%).
The miscellaneous goods and services item remain a serious concern as this item makes up 13.5% of the CPI basket and has been rising by an average of 11.5% y/y during the year to date, it comments. Various insurance products make up half of this item, while it also includes other financial and personal care goods. Prices of financial services increased by 17.8% y/y (June: 20.0%) while prices for other services recorded an increase of 15.1% y/y (June: 17.2%).
Following the new CPI basket introduced in January 2008, the purchase of vehicles (+3.0% y/y) forms the bulk of the transport item (-3.4% y/y), with petrol and running costs (-14.1%) contributing around a quarter of the weight. Public transport also falls into this category and prices only increased by 3.4% y/y during July (June: 4.7%). This small increase illustrates the moderation in public transport prices compared to the increase of 14.6% y/y witnessed in May.
Says Efficient Group, “According to the June SARB quarterly Bulletin, average wage settlements rose 10.2% during the first quarter of the year, confirming the wide spread inflationary pressure in the economy, being felt (and consequently demanded) by workers.

“It was apparent that the South African economy still remains under pressure following the release of manufacturing data for June 2009 and GDP figures for the 2nd quarter of this year. On this note and even though inflation remains outside the target range of between 3- and 6% the South African Reserve Bank slashed interest rates with another 50 basis points during August. The real interest rate (Repo-CPI) is now bordering on zero just above the negative territory — assuming a consumer will be able to get a deposit rate equal to Repo. This limits the scope the MPC has to a further rate cut despite lower economic growth and employment figures.

Copyright © Insurance Times and Investments® Vol:22.10 1st October, 2009
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