The surprisingly low inflation numbers for last month provide the Reserve Bank with a bit more room to at least consider making a change to rates, after surprising all of us at the last meeting. It all depends on the Bank’s reading of economic developments in Europe and the US over the coming weeks.
The emerging market story is going off the boil, as evidenced by weaker company profits from growth engines such as China.
At the Bank’s last policy meeting, governor Gill Marcus and her team sprang a surprise on everyone by cutting rates by 50 basis points to boost the slowing economy.
Inflation last month came in at 4.9 percent compared to 5.5 percent in June, and lower than the consensus forecast of 5.2 percent. The Reserve Bank has a targeted inflation rate of between 3 percent and 6 percent.
A slowdown in spending and a weak global economy are likely to keep inflation contained till the end of the year. But food remains something to keep an eye out for because of the severe drought in the US, that’s damaged its maize harvest. The world’s biggest economy is also the biggest producer of the grain.
There are certain to be some calls for the central bank to cut rates even lower by the end of the year. After September’s monetary policy meeting, the Bank will have one more chance to make a change in November.
Odds are more stacked towards a cut in about six months.
In deciding on the next move, the Bank will have to consider the effect of rising fuel and food costs, which are on the rise again after easing in the global slowdown.
South Africa’s petrol price may rise by up to 78c next month because of higher international prices. Local grain prices have been rising in light of the worst drought in the US since the 1950s, which has not yet been fully reflected in inflation.
There’s also the rand to consider, which remains in very vulnerable territory in this "risk on, risk off" environment.
Foreigners’ impressions of how the Marikana tragedy is handled will also play a part.
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