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SA’s annual inflation rate for April down 0.1% to 4.4%
South African consumer price inflation has dipped by 0.1 per cent in April to 4.4 per cent. The SARB indicator continues to reveal a contracting South African economy. Rising fuel costs lead to higher food prices resulting in strained consumer spending. Joining CNBC Africa to discuss April’s CPI and shares that win and lose is Craig Pheiffer, Chief Investment Strategist, Absa Stockbrokers and Portfolio Management.
Wed, 22 May 2019 10:37:36 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Statistical benefit from dropping VAT rate drove favorable inflation numbers in April
- Fuel prices and transport costs continue to be major drivers of inflation
- Cautious approach by Reserve Bank on potential rate cuts amid economic challenges
South African consumer price inflation for the month of April has dipped by 0.1 per cent to 4.4 per cent, slightly better than market expectations. The latest releases from the South African Reserve Bank (SARB) continue to signal a contracting economy amidst rising fuel costs leading to higher food prices, putting a strain on consumer spending. Craig Pfeiffer, Chief Investment Strategist at Absa Stockbrokers and Portfolio Management, joined CNBC Africa to provide insights on April's Consumer Price Index (CPI) and discuss the impact on the market. In the discussion, Pfeiffer highlighted that the VAT rate impact from the previous year dropping out of the base contributed to the favorable inflation numbers in April. This statistical benefit played a significant role in keeping the inflation numbers in check. He noted that fuel prices and transport costs remained major drivers of the CPI, together accounting for a significant portion of the basket. Food inflation, however, stayed relatively low, contributing around 14-15% to the CPI basket with a moderate inflation rate of 2.5%. Pfeiffer also mentioned that meat prices faced deflation year on year, a trend that is expected to moderate in the coming months. Despite the current inflation figures, concerns loom over the future trajectory due to uncertainties in the international markets, especially regarding energy prices, and the impact of a slowing domestic economy. Pfeiffer believes that while the local economy is grappling with various challenges, including weak retail and manufacturing sectors, the inflation is likely to remain under control, with risks of stagflation seemingly subdued. He pointed out that the South African economy is on a downtrend, with projections of a negative GDP growth of 2.2% for the first quarter. However, he emphasized that this negative growth might not signal an impending recession, but caution is advised given the weak momentum entering quarter two. Pfeiffer highlighted that the Reserve Bank is cautious about potential rate cuts, emphasizing that the barriers to a rate cut are high and market expectations need to be managed. While there is some speculation in the market about a potential rate cut, Pfeiffer believes that the Governor will adopt a cautious approach unless the economic conditions deteriorate significantly. He indicated that the outlook suggests inflation may tick up towards the end of the year, possibly reaching 4.8% and could enter the five percent range in early 2022. Overall, Pfeiffer's outlook remains conservative, ruling out the possibility of a rate cut this year unless there is a substantial economic downturn leading to a potential recession. The central theme of the discussion revolves around the delicate balance between controlling inflation and supporting economic growth amidst challenging domestic and global economic conditions. While the inflation numbers for April provide some relief, the broader economic landscape poses uncertainties for the future stability of South Africa's financial market.
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