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CPIX soars to 10.1 percent

by Michael Appel
on 23 Apr 2008
BuaNews Online
BuaNews Online

The Consumer Price Index excluding interest on mortgage bonds (CPIX) has soared to 10.1 percent for March 2008, reported Statistics South Africa (Stats SA) on Wednesday.

March's CPIX figure is up 0.7 of a percentage point on February's figure of 9.4 percent year-on-year.

The main contributors to the increase in consumer price inflation were food, transport, housing, medical care and health expenses, education and fuel and power, said Stats SA.

Speaking to BuaNews on Wednesday, economist George Glynos from Econometrix Treasury Management (ETM) said the CPIX figure is a "horrific figure" which does not signal anything very positive for the average South African.

"A lot also depends on the outlook of the 53 percent electricity tariff increase requested by [state power utility] Eskom.

"If that electricity tariff hike comes through, we could be looking at inflation peaking at about 11.4 percent by September 2008, and only trend down gradually to within the 3-6 percent inflation target band by about 2010," said Mr Glynos.

Speaking to BuaNews in late February 2008, Mr Glynos said inflation, at the time, was expected to peak in the 10 percent region by September 2008, and would then hopefully follow a gradual decline back towards the 3-6 percent target band by quarter two of 2009.

Wednesday's CPIX figure, he believes, has "sealed the case for the Reserve Bank's Monetary Policy Committee [MPC] to raise interest rates in June," adding, it has also upped the chance of another interest rate hike in August 2008.

The proposed electricity tariff increases would boost cost pressures across the board from manufacturers to wholesalers and retailers, resulting in everyone in the production and distribution phase increasing their prices further fuelling inflation.

Mr Glynos highlighted that the price of oil hit fresh record highs on Wednesday, with oil at R118.98 per barrel.

High oil prices, he said, translate directly into higher fuel prices with an expected 30 cent fuel price increase in the first week of May 2008.

Business Unity South Africa (BUSA) Director for Economic Policy, Simi Siwisa, speaking at a press briefing on Tuesday expressed concern that the Reserve Bank's policy of hiking interest rates was not the effectively combating inflation.

"We are concerned that the interest rate hike [used by the Reserve Bank] as an instrument to target inflation is not working because consumer spending has slowed, but inflation continues to rise," said Ms Siwisa.

Economists widely believe, the proposed electricity tariff increase, coupled with the effects of load-shedding and the weakening Rand will further fuel inflationary pressures in the economy.

March's CPIX figure is the 12th breach of the Reserve Banks inflation target band. - BuaNews

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