Structural problems keep CPI high
CPI for 2009 (average): 7.15%
CPI for December 2009: (year-over-year) 6.3% vs 5.8% in November
CPI for December 2009: (month-over-month) 0.3% vs 0% in November
Analysis
- The average CPI for 2009 amounted to 7.15%.
- However the accumulated month-over-month increases from January to December is 6.2%.
- The component of CPI which is repo rate inelastic and lowly repo rate elastic averaged 7.6% in 2009. Table 1 below provides an indication of some repo rate inelastic price changes.
Table 1:
|
Date |
CPI |
Bread & Cereals |
Housing & Utilities |
New Vehicles |
Insurance |
Repo rate inelastic CPI |
|
Jan ‘09 |
8.1 |
28.0 |
9.2 |
9.4 |
6.4 |
9.1 |
|
Feb ‘09 |
8.6 |
23.8 |
9.1 |
10.8 |
8.2 |
9.8 |
|
Mar ‘09 |
8.5 |
19.9 |
8.1 |
11.1 |
7.5 |
9.3 |
|
Apr ‘09 |
8.4 |
17.9 |
8.1 |
12.0 |
7.5 |
9.0 |
|
May ‘09 |
8.0 |
10.8 |
8.0 |
14.4 |
7.5 |
8.4 |
|
Jun ‘09 |
6.9 |
6.0 |
7.3 |
12.1 |
7.7 |
6.9 |
|
Jul ‘09 |
6.7 |
3.8 |
8.2 |
11.1 |
10.5 |
6.8 |
|
Aug ‘09 |
6.4 |
0.4 |
7.8 |
12.0 |
10.5 |
6.4 |
|
Sep ‘09 |
6.1 |
-2.0 |
7.6 |
10.2 |
11.2 |
6.3 |
|
Oct ‘09 |
5.9 |
-2.5 |
7.4 |
10.4 |
12.0 |
6.1 |
|
Nov ‘09 |
5.8 |
-2.8 |
7.4 |
10.3 |
12.0 |
6.0 |
|
Dec ‘09 |
6.3 |
-3.2 |
7.0 |
9.6 |
12.2 |
6.8 |
|
Ave 2009 |
7.15 |
8.3 |
7.9 |
11.1 |
9.4 |
7.6 |
- Bread and cereals inflation dropped spectacularly from 28% in January to -3.2% in December.
- Housing and utilities inflation was kept high by the electricity tariff and other municipality tariff increases. Rentals and owners’ equivalent rent remained subdued.
- New vehicle inflation also remained high due to the business model of the vehicle industry to increase prices in order to somewhat compensate for the loss in sales. This type of action, which is prevalent through most sectors of the economy, will ensure that many prices remain inelastic to changes in the repo rate.
More or less the same applies to insurance inflation which averaged 9.4% last year.
Outlook
- The CPI for 2010 should start at levels above 6% due to base effects.
- However, subdued demand should ensure a gradual down trending CPI.
- CPI might however trend upward from the middle of the year if metal and agricultural commodity prices increase further, if the rand continues a weakening trend after the Soccer World Cup Finals and if the effects of a low base kick in.
- CPI will also be affected if the authorities decide to change the CPI targeting framework. A dual mandate of CPI and economic growth is not the most appropriate. Should a dual mandate be considered it should be CPI and unemployment (as economic growth does not necessarily translate into more jobs).
- Electricity tariff increases below 25% will be positive for CPI.
Forward-looking implications of CPI
- Implications will depend on whether the authorities decide on a new inflation targeting framework.
- Interest rates should remain unchanged as little demand pressures are expected.
- A more subdued CPI should improve the country’s economic growth and job creation prospects.
