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Inflation at lowest since 2006

Jun 23 2010 11:48
Johannesburg - The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank
(Sarb) for its inflation target, was 4.6% year-on-year in May from 4.8% y/y in April, Statistics SA said on Wednesday.

It remains well within the target band of between 3% and 6%.

CPI was at 0.2% month-on-month (m/m) from 0.2% m/m in April.

CPI was expected to have decreased to 4.6% y/y in May from 4.8% in April, according to a survey of leading economists by I-Net
Bridge.

The CPI edged below 6% in February after it had reached levels higher than 6% the previous two months.

Forecasts among the eleven economists ranged from 4.4% to 4.9%.

Annual CPI in 2009 struck 7.1% from 11.5% in 2008. It was at 7.1% in 2007.

The annual average for CPI was 4.7% in 2006 from 3.4% in 2005, compared with only 1.4% in 2004, which was the lowest annual
average since 1958.

Carmen Altenkirch Economist at Nedbank said: "Consumer inflation came in spot on market expectations, easing to its lowest
level since May 2006.

"Downward pressure on inflation came from lower food prices as well as a further moderation in goods inflation, particularly durable
and semi-durable goods.

"Double-digit administered price inflation remains the main driver of headline inflation.

"Although we still expect interest rates to remain on hold well into 2011, the MPC may surprise by easing further in July, given the
near-term improvement in inflation and inflation expectations, particularly if growth figures start to disappoint."

Investec economist Annabel Bishop said: "CPI inflation fell even lower in May, to 4.6% y/y, almost at the midpoint, compared to
April's 4.8% y/y. Rand strength remains key in aiding the ongoing moderation in the inflation outcome, but the ongoing weakness in
demand is also important, as well as the statistical base effect.

"CPI inflation is likely to fall to 4.0% in the third quarter as the lagged effect of last year's recession continues to impact the cost of
living.

"We expect another interest rate cut in the current cycle, of 50 basis points – either at the July or September monetary policy
committee meeting."

- I-Net Bridge

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1 of 2 21/07/2010 22:04
Inflation at lowest since 2006: Fin24: Economy http://www.fin24.com/Economy/Inflation-at-lowest-...

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SAGE Jun 25 2010 11:20
@TT...let me put the importance of the inflation target in laymens terms for you so that the scenario analysis does not confuse
you! Let me ask you a simple question...how would you like to go to the shop every month end and have bread increase in price
consistently...I mean literally every month, say on a monday it goes up ten percent or 8.5 cents based on the average bread price
of R8.50 a loaf!? Draw a chart over 12months i.e a year and increase the price by ten percent on the previous month's price and
see what the price looks like after a year and do the opposite with your salary because your purchasing power is getting smaller by
10% every month....how about that as an alternative? Now imagine it happens with every product in the economy? Get the
picture?

SAGE Jun 25 2010 11:01

@R....If you are considering buying a house this is the best time to buy it because prices are depressed but ONLY and I repeat
ONLY if you can be 100% certain you are going to have your job in two to three years time or you have enough money saved or a
working spouse and low debt should such an eventuality like a job loss unfold! The prices are low because the underlying economy
is crap and the economy supports your income. Remember you have to hand over some of your income over the next 15 to 20
years to the bank before you own that house if you take out a mortgage.

R Jun 23 2010 12:23

Anyone think we are going to get deflation ? Wont that mean its a very bad time to buy assets like houses ? Even if they drop the
interest rate another 4% ...

TT Jun 23 2010 12:12

Is there any reason we have to target inflation? If so, suppose it was, say, 10% -WHAT WOULD HAPPEN THEN? Increase the
repo rate - why? Then bloody chop the repo to 5% for earth' sake!

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2 of 2 21/07/2010 22:04