Inflation bursts through Mboweni's 6% ceiling

[mwk]

INFLATION soared in April, with the annual increase in CPIX up 6,3%, breaching the top of the Reserve Bank's target range for the first time in nearly four years, and sealing the case for an interest rate hike at the central bank's policy meeting next week.
Headline consumer inflation (CPI), a broader measure which includes home loans, accelerated to 7,0% in April from 6,1% in March - its highest since May 2003, according to Statistics SA.
Rising food and fuel prices were the main culprits but core inflation - which excludes those components - leapt by an annual 5,9% versus 4,9% in March, a development which economists said pointed to "second-round" inflation effects which the central bank could not ignore.
Food prices rose by an annual rate of 8,4% in April, up from 7,7% in March - a worrying trend for SA's poor majority, who spend most of their income on food. Transport costs accelerated 7,7% from 4,6% in March, mainly reflecting higher domestic fuel prices, which have climbed more than 17% so far this year in response to rising global oil prices and the weaker rand.
Full article...
http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A479442

[#2]

I posted this a week or so ago: "My dog is worried about the economy. The price of a big bag of Alpo is now well over R80 - thats about R500 in dog money..." It seems like Labradors make the best investment advisors

[#3]

I may not be seeing the bigger picture,but what I fail To understand is that the price of fuel and foodstuffs is largely responsible for the breach.How then will raising the interest rate stop this?It will only make matters worse for the majority of people.

[SimonPB]

dumbtrader, that's exactly the problem the MPC will ahve next week. Increased repo rate will do nothing to reduce petrol or maize prices as both are set in international markets. BUT the MPC does need to be seen responding to a breach of the upper limit ???

[GdM]

And both are virtually demand inelastic. Food and fuel are needs, not wants. Raising interest rates will not curb their climb directly, but might strengthen the rand which will reduce imported inflation (through effects of ER movements).

[#6]

But for how long will the rand strengthen?seen it before,strengthens on the news and then a few days later it is back where it started.

[GdM]

Agreed. The best inflation target policy is a sound, ethical and sensible political policy, ie don't endorse our grubby dictator, keep corrupt politicians out of office. Then we should see strides in our currency. (and the resource boom doesn't hurt either)

[GdM]

sorry - that should read, our grubby neighbourly dictator...

[Preston]

Rising the Interest Rate...Excessive money generated in the form of higher interest rate will to a certain extent fund the "balance of Payment"/ "trade Decifits. If Trade decifit decrease.... rand becomes stronger and will strenghten ,therefore Price of Petrol will become cheaper in Rands sense ...... Decrease in Petrol will lead to lower transport cost and will help elevate rising food inflation.... Hope this help

[Wizard]

As far as I know u are in The UK :)

[SimonPB]

preston, you are correct - but two buts. In the past interest changes have had a limit tiem effect on the rand, lasting only really a couple of hours. Secondly, this is a really long winded method for the mpc to manage inflation, heck interest rates is long winded enough as it is ?

[Wizard]

This is only the beginning people, not the end! I went to buy full chicken in marinade from Pick'n Pay the other day. 2 months ago it was 35 bucks, it is now 42! That is a full 20% increase.

[Wizard]

Where are the successes from interest rate rises? Was it here back in 90s? Was it in the US during the 70s. Not to mention Zim!. How about Japan.0% interest rate and deflationary environment for a long time.

[Preston]

Simon ...Agreed.. Remember everytime interest rate increases , foreign investor will either accept South Africa as viable investment due to its higher interest rate enviroment compared to other country.... If interest rate is attractive...money will flow into SA in the form of investing in Bond or other way. Foreign investment into SA will boost the Rand which in turn make petrol cheaper because of a stronger rand..Remember when the Rand went to R13 to the dollar... The Balance of payment was looking extremely healthy at that stage and the every next day or so the Rand strengthen... In economic we learn about the "Twin Evils" ie inflation vs interest rate.. Simon Can I ask for a favour . I have been trying to understand the basic concept relating to RSI, which i now understand however I have a problem understanding how they plot it to graph... Do you have some advise or some working which i can look at..

[Brazen]

You make me laugh Wiz. You really do! A marinaded chicken index!!

[#16]

Marinade, LUXURY! When I was young my mum would marinade the chicken with spit and tears! Marinade...

[Wizard]

I do make it better that Nandos and all those other places...! No Rate hike will make me stop buying it!

[Wizard]

Come on...u sound like my colleagues now. The people here can afford it, unless u choose the wrong warrants.

[#19]

Spit and tears! Luxury! When I was young, we were so poor, that we would collect our spit and tears so someone in the family could have a drink that month. Pure luxury.

[#20]

If there was a marinade warrant out there Id stock up, they going to need a boat load to disguise the taste of all the off meat from all the power cuts from eishkom.