CPIX - No surprises
The rise in cpix was marginally above forecasts – but not a surprise to market, says Wayne McCurrie, Chief Investment Strategist at Advantage Asset managers.
While Adenaan Hardien, chief economist at African Harvest Fund Managers says the Reserve Bank’s target measure of consumer inflation rose in March, as expected, from an all-time low in February.
Consumer inflation will trend higher over the remainder of the year on base effects, with peaks over the third quarter and the first quarter of next year.
The Reserve Bank’s recent shock announcement of a further cut in the repo rate has made me rather hesitant to venture a guess as to the outlook for interest rates.
“But if a guess has to be tortured out of me, my call would be for rates to move sideways over the remainder of the year, notwithstanding a near-term risk of another rand-induced cut.”
Mc Currie says that the capital market and rand did not really react to the release of the data, so it was as anticipated. The rise from 3.1% to 3.6% probably was attributable to the rise in petrol, but we await more detail.
“Rather than look at the monthly picture in isolation, we should rather concentrate on the medium term outlook for inflation. The very low inflation that we have experienced over the last year, and the big decline since 2003, has primarily been as a result of Rand strength,” says Mc Currie.
If the Rand does not strengthen again from the current level, inflation will rise. The extent of the rise can be debated, but it will most likely rise to between 5%-6% and could temporarily breach the 6% upper limit of the Reserve bank’s guideline for inflation.
Unless the Rand rises from this point on, this is virtually certain to occur. This would result in real bond rates (R153) decreasing to about the 2% level and real money market rates decreasing to about 1%. Both of these are very low.
Mc Currie says: “I would think that real yields of 3% would be more appropriate. This would leave no room for the Reserve bank to cut rates further.
