CPI inflation drops to 8.0%
The CPI inflation figures for May 2009 were just released by Stats SA.
As expected, the CPI inflation rate continued its downwards trend, with the headline inflation rate for May 2009 coming in at 8.0%, 0.4 of a percentage point lower than the figures for April 2009.
You can check out this page if you want to see a chart and table of the CPI inflation rates in South Africa, since 1982.
What does the CPI figure for May 2009 mean?
The CPI figures for May 2009 means that the average South African paid 8.0% more for goods and services in May 2009, than he did one year earlier, in May 2008.
The CPI inflation rate for May 2009 is slightly lower than it was in April 2009, which shows that inflation is slowly coming down.
How does this affect the chances for an interest rate cut?
The inflation rate for May 2009 is still outside the SARB‘s target inflation band of 3% to 6%.
This leaves the SARB with quite a difficult decision.
Even though South African is better off than most other developed countries like the USA, unemployment GDP figures shows that the economy is still under pressure.
An interest rate cut could help to stimulate the economy and ease this pressure.
On the other hand, inflationary pressures are starting to return. For example, the oil price is back up to about $US 70 per barrel, after trading at prices of around $US 40 just a while ago.
If the SARB lowers the repo rate too much it will break the CPI inflation rate’s downwards trend.
I think the SARB will cut the repo rate by 50 basis points at their next monetary policy meeting. However, I suspect that there will be no further interest rate cuts for the remainder of 2009.
June 24th, 2009 at 12:03 pm
I agree, one more cut of 50 points will be the end of the current cycle.