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Not unexpected

29 March 2006 Angelo Coppola

Dennis Dykes, at the Nedcor group economic unit says that the headline consumer inflation and CPIX were below consensus market forecasts.

The CPIX index rose by 0,2% over the month, partly due to a 0,8% m-o-m increase in transport costs on the back of the 14c/l petrol price hike in February, while further increases in food prices and a large jump in alcoholic beverage prices also added the upward pressure.

However, the increases were partially offset by an unexpected 1,6% m-o-m drop in the costs associated with domestic workers, following a bi-annual survey on their wages conducted during the month, and lower clothing and footwear prices.

Outlook

The Economic Unit expects CPIX inflation to ease to around 4% in March, mainly due to the 11c/l decline in the petrol price earlier in the month. Thereafter, continued high international oil prices, rising input costs, sustained growth in domestic spending, strong credit demand and a low base will push inflation back towards the mid point of the Reserve Banks target.

However, the firm rand and deflationary global conditions should help to cushion domestic price pressures.

Implications

The inflation outlook remains favourable and CPIX inflation is expected to stay well within the 3% to 6% target range over the next two years. However, strong domestic demand, rising food prices and persistently high international oil prices remain potential threats to future inflation.

We therefore expect that the Monetary Policy Committee (MPC) will maintain a neutral policy stance at its 12 13 April meeting.

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