Consumer inflation figures due out this week are expected to back the Reserve Bank’s view that inflation will be contained for some time, and support its decision to keep interest rates at their lowest since 1974.
The inflation rate is expected to have eased to 5.2% year on year last month - from 5.5% in June - when Statistics SA releases the data on Wednesday. That keeps inflation within the Bank’s official target range of 3%-6%.
Governor Gill Marcus said last month that the Bank expected inflation to continue to moderate over the next few quarters, reaching a low of 4.9% in the second quarter of next year. The Bank sees inflation remaining fairly stable at about 5% to the end of 2014. It is expected to average 5.6% this year, and 5.1% next year and in 2014.
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Efficient Group economist Merina Willemse says base effects will have played a role in inflation increasing at a slower pace, and that while the group expects slower increases in the housing and utilities and transport categories, the food subindex could disappoint.
"In general, we expect a slight increase in the expansion of the food category as a whole, but pressure remains muted on the highest-weighted subcategories of the food index, namely bread and cereals and meat," she says.
Food could add more pressure on inflation in coming months. The United Nations Food and Agriculture Organisation’s food price index released last month climbed 6%, mostly driven by a surge in grain and sugar prices.
The Bank also warns, in its annual economic report, that food prices could remain elevated during the remainder of this year due to cost-push pressures arising from higher refrigeration, transport and electricity costs and wage hikes.
Despite the expected slowing in the annual inflation rate, monthly forecasts are less optimistic. Economists say inflation is likely to have picked up last month by as much as 0.8% from a 0.2% monthly increase in June.
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