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May CPI Rises

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The Consumer Price Index (CPI) in May rose above market expectation to 4.6 percent, Statistics South Africa (Stats SA) said on Wednesday.

“The headline CPI annual inflation rate in May 2011 was 4.6 percent. This rate was 0.4 of a percentage point higher than the corresponding annual rate of 4.2 percent in April 2011,” said Stats SA.

Market expectation was that CPI would rise to 4.3 percent year-on-year. On average, prices increased by 0.5 percent between April 2011 and May 2011 with high food and fuel prices and personal care items being mainly responsible for the monthly increase.

Nedbank economist Carmen Altenkirch said past increases in international food and fuel prices are still expected to push inflation to the upper limit of the target band in the last quarter of the year.

“Much now depends on whether global food and fuel prices, which appear to have halted their upward trend, will ease off in the coming months and whether the second round effects of inflation remain dormant.”

Second round effects on inflation stemming from higher energy and food prices have so far remained dormant, with semi-durable and durable goods inflation still well contained by a strong rand and retailers’ lack of pricing power.

“The Governor [Gill Marcus] has highlighted that the MPC would monitor the economy for any evidence of second-round effects. Although inflation is expected to rise above the six percent target in the first quarter of 2012, the increase is forecast to be temporary, largely driven by international cost-push pressures,” said Altenkirch.

The bank believes the MPC is likely to continue with its wait-and-see policy until there is greater evidence of “more generalised inflation”, either due to second-round effects from higher commodity prices or price pressures emanating from robust domestic demand.

In May, the Reserve Bank kept the repo rate unchanged at 5.5 percent. – BuaNews

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Alan Straton

Chief Cook, Bottle Washer and Broom Mechanic at MyPE
Passionate about Port Elizabeth and definitely NOT packing for Perth. Alan's ethos is epitomised in the words of Nelson Mandela; "I have fought against white domination and I have fought against black domination. I have cherished the idea of a democratic and free society. If need be, it is an ideal for which I am prepared to die." See more articles by Alan.