Consecutive Fuel Increases Push June Inflation to 5.9%

The unexpectedly sharp rise in producer price inflation, which reached nearly 6% in June, mainly due to fuel price pressures, bodes ill for the inflationary trajectory and the outlook for inflation. interest rate. 4.6% in May to 5.9% in June, according to figures released Thursday by Stats SA. This largely exceeds the market consensus for an increase to 5.2%.

The main driver was the oil category, which added 3.1 percentage points to the main figure. This reflects the fact that oil and diesel prices rose by 82c / l and 85c / l respectively in June due to a higher international oil price and a lower rand.

23c / l for gasoline and 26c / l for diesel, suggesting that the PPI should continue to climb. Investec Economist, Lara Hodes, notes that, fortunately, the dynamics of food prices has exerted a moderating influence on the prices of the manufacturing industry, supported by the abundance of food. Corn supply and moderation of meat price increases. She expects moderate food price inflation for the remainder of 2018.

At its meeting of the Monetary Policy Committee (MPC) last week, the Reserve Bank noted that the outlook for the rest of the year was good. SA inflation was deteriorating, mainly due to the supply.

The approach of the Bank is to examine the effects of the first round of oil price-induced inflation increases. But he warned that he "would not hesitate to act if there were to be second-round effects that significantly distance us from the mid-point of the inflation target range."

Weak domestic demand, which reduces business capacity Pbading fuel prices on to consumers by increasing the price of their goods and services is likely to remove to some extent the emergence of Second round effects.

The Bank now expects a spike in inflation to about 5.7% the first half of next year, near the upper limit of the target range, and 5 , 6% on average for 2019 (against 5.2% previously) before dropping to 5.3% by the end of 2020. He also considers the risks for inflation

The economist Johannes Khosa , from Nedbank, said that if consumer inflation was likely to increase, he did not expect that the consumer price index would exceed the upper limit of the target range over the next few years. next three years. This relatively b Consider inflation prospects and the still weak economy will likely convince the MPC to delay hiking rates as long as possible. "

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