A better-than-expected inflation number on Wednesday came as the rand continued to hover at just over R19 to the dollar. It was a reminder that inflation risks abroad, specifically in the US, could be as material to the outlook for prices in SA as its domestic dynamics.
It was a reminder too that, as the IMF put it this week, though inflation globally is heading down towards target, the last mile of that road is a bumpy one.
The latest figures from Stats SA show headline consumer price inflation slowed to 5.3% year on year in March from 5.6% in February, comfortably below the 5.5% consensus forecast. The March hike in the petrol price had been expected to weigh on inflation, and fuel price inflation came in at above 6%. But core inflation, excluding volatile food and fuel costs, eased to 4.9%. The moderating trend is expected to continue in the coming months.
At 5.3%, inflation is well within the Reserve Bank’s 3%-6% band though the “last mile” in getting it to the favoured 4.5% midpoint target is still substantial. The Bank is worried about bumps. Currency weakness is definitely one of them, and a jump in US inflation in the latest month means the Fed is going to be even more wary of starting to cut rates.
That is likely to keep the dollar strong, at the expense of emerging market currencies. Add to that SA’s own election uncertainty and concerns about drought and food prices, and we can expect the Bank to remain wary.
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