Headline CPI decelerated further in April to 6.2% y/y from 6.3% in March, but was up 0.8% on a month-on-month basis. Jason Muscat, FNB Senior Industry Analyst explains.
The deceleration comes despite sharp rises in the year-on-year cost of food and beverages, and month-on-month price of petrol. Food inflation registered 11.3% y/y in April from 9.8% in March. Price increases were particularly pronounced for vegetables (23%0), fruit (19.6%) and breads and cereals (14.9%). While petrol prices contracted -2.3% on a y/y basis, it rose by 7.5% on a m/m basis due to the petrol price hike.
Vehicle price inflation is also beginning to gain momentum (7.4% in April from 6.8% in March) as dealerships and manufacturers are less inclined to offer incentives and absorb margin pressure due to the deteriorating exchange rate. This does not bode well for already depressed vehicle sales figures.
The rand’s weakness against most major currencies, coupled with a recovery in the oil price suggest that inflation will begin to gain momentum in the coming months and remain outside the bank’s target range for an extended period of time. Despite these risks, we think the Reserve Bank will likely keep rates on hold at tomorrow’s MPC announcement, but will be forced to act as pass-through speeds up in the latter half of the year.
Jason Muscat is Senior Industry Analyst at FNB