Modest

(28.7.04) Strong Rand and Stable Inflation supports confidence in economy

June's modest 5.0% year-on-year increase in CPIX coupled with a consistently strong rand reinforces our confidence in the South African economy, says Tebogo Hlabioa, Economic Research Analyst at Metropolitan Asset Managers.

“This increase in CPIX was lower than the market's expectation of 5.4% and adds to lower inflation expectations.

Transport costs, which increased from 4.2% in May to 9.1% in June as a result of an erratic oil prices in the last few months, were the main drivers of this month's CPIX.

However, the June petrol price cut which will factor into the next CPIX numbers, should have positive spin offs to both consumer and producer inflation in the next few months.

We can expect a little bit of a spike from tomorrow's PPI numbers due to higher winter season electricity prices.

We do not expect this to be sustained going forward because of imported lower goods inflation and government's plans to quicken the pace in introducing competition to current monopolies such as Eskom and Telkom.

Overall, we remain sanguine in our view that interest rates will remain on hold this year. The June CPIX 5.0% year-on-year increase poses no threat to the current monetary policy stance.”