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    Inflation Slightly Down – Interest Rate on Hold

    Tito Mboweni’s last meeting in charge of the SARB was held on Monday and Tuesday, with the committee ultimately deciding to keep the repo rate on hold. Central / Reserve Bank Governors around the world are keeping a sharp eye on each bit of economic data that comes out, not only in their own country, but also in other influential countries. While much of the world is just coming out of recession the ‘all clear’ flag has not yet been waved and Governors around the world need to know when the ‘all clear’ will be given – if it comes at all – or if a ‘new normal all clear’ will eventually prevail.

    Just a recap of some of the more important facts to come from Stats SA on the August CPI figure:
    • Inflation down to 6.4% pa from 6.7% for the year ended 31 July 2009. CPI is still out of the target 3 – 6% range (it’s now been 30 months since we were last in the target range). The level of inflation was in line with expectations.
    • Transport is still deflationary over the past 12 months – transport index down 2.7% over this period – but the rate of deflation is falling. This indicator is largely influenced by petrol prices, and so will have upward pressure when September’s CPI is released, but should offer some relief the following month (expectations of a fuel price fall in October).
    • Inflation in Limpopo is the only province where inflation is in the target range (5.7%), while Mpumalanga is the province with the highest inflation rate (7.4%).
    • Food and non-alcoholic beverage inflation is starting to come under control. It was up only 0.1% for the month and 6.8% over 12 months. Downside on this figure was provided by oils and fats (-1.2%), bread and cereals (-0.5%), and meat (-0.5%). Remember these items have come from a high base, so being deflationary doesn’t necessarily mean they’ve become cheap.
    • The price of alcoholic beverages and tobacco increased by 2.5% in August, and by 12.6% over 12 months.

    The statement from the MPC highlighted the following key facts:
    • CPI to enter target band on a sustained basis in the second quarter of 2010.
    • Rand strength has helped to keep inflation down, but remains a key risk should it weaken sharply.
    • Inflation expectations have fallen, but remain above the upper end of the target range.
    • Administered price increases (electricity, etc) and growth in real unit labour costs (i.e. wage increases above inflation that aren’t based on increased productivity) are the main upside risks.
    • The local economy remains weak and in recession.

    Overall it looks like we are heading in the right direction, but only improving ever so slightly. In light of this ‘light at the end of the tunnel’ it is probably pragmatic to keep the repo rate at 7%. We are at all time lows, and the Governor is conscious of not dropping rates too low. At the same time, we are not in the position to even be contemplating a rate hike. We will most likely see rates staying at this level for some time to come unless there is a severe shock to the system.

    Enjoy Heritage Day, and be sure to pull your braai out!

    Take care,

    Mike Browne
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2009-09-23, 17:42:56, by Mike Email , 1 comment
    Trackback address for this post: http://blog.sharenet.co.za/htsrv/trackback.php/1468

    Comments, Trackbacks:

    Comment from: Air Jordan shoes [Visitor] Email · http://www.airjordan.cc
    Wonderful post. After reading your post, I learn something before I don't know. thanks.
    PermalinkPermalink 2010-06-28 @ 09:53

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