Rate hopes hang on new CPIX figure

Posted On Monday, 26 January 2004 02:00 Published by
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Economists will earn their pay this week with the release of consumer and producer inflation as well as credit and money supply data

January 26, 2004

By Vernon Wessels

Johannesburg - Economists will earn their pay this week with the release of consumer and producer inflation as well as credit and money supply data.

Of the data, the consumer inflation numbers, due for release tomorrow, will be the most significant, as they will give an indication of whether there is space for the Reserve Bank to cut interest rates at its monetary policy committee meeting at the end of next month.

A consensus forecast of 14 economists surveyed by Reuters predicted headline annual inflation to measure 0.4 percent for December. The lowest forecast was minus 0.2 percent and the highest 0.8 percent.

The central bank's targeted measure of inflation, CPIX, which is headline inflation less mortgage rates, was expected to measure 4.2 percent. The lowest forecast was 3.8 percent and the highest 4.6 percent.

Annabel Bishop, an economist at Investec, said a significantly better-than-expected CPIX figure might prompt renewed anticipation of a rate cut.

Late last year the market had expected a cut of at least 50 basis points but the rand's trip back above R7 a dollar dampened these hopes, as did the threat of drought on food prices and a spike in the oil price above $30 a barrel.

John Stopford, a portfolio manager at Investec Asset Management, expected a 50 basis point rate hike in June and another of the same magnitude in August.

CPIX may pick up sharply from February and potentially breach the 6 percent upper end of the Reserve Bank's target from the middle of this year, because of rising food and commodity prices and a depreciation in the rand. 

The producer price index (PPI), due on Wednesday, was expected to dip to minus 1.8 percent, with forecasts moving in a range of minus 2.8 percent and minus 1.5 percent.

Johan Rossouw, the chief economist at Vector Securities, said: "Headline PPI and the imported component in particular, will still be left well in deflationary territory. Our longer-term forecasts do, however, suggest PPI may have reached the bottom of the current cycle in November."

He forecast that PPI would gradually increase to just above 5 percent by the end of this year.

The release of money supply and private sector credit extension data by the Bank on Friday was likely to show strong domestic demand, said Shireen Darmalingam, an economist at Standard Bank.

The Reuters survey predicted growth in private sector credit extension to measure an annual rate of 23.3 percent in December from 21.81 percent in November, while M3, the broadest measure of money supply, would accelerate by 7.9 percent from 6.8 percent.

On Friday the trade deficit, which widened to R4.3 billion in November from a deficit of R713 million in October, was expected to have narrowed to R1 billion during December.

Publisher: Business Report
Source: Business Report

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