JOHANNESBURG, 22 AUGUST 2018 – The consistent rise in the Consumer Price Index (CPI) is a cause for great concern and does not bode well for businesses operating in the metals and engineering (M&E) cluster, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said this morning.
Speaking after today’s release of the latest CPI figures by Statistics South Africa (Stats SA), SEIFSA Chief Economist Michael Ade said the CPI for the month of July 2018, which represents a third consecutive increase from May 2018, does not bode well for businesses in the broader domestic economy in general and the M&E sector in particular, given the fact that the increases take place on the back of weak domestic demand, increasing petrol and energy prices, a depreciating rand and less synchronised global growth.
Dr Ade said the data was also indicative of the strain borne by businesses as increasing costs of production are gradually being passed unto the final consumer.
“This is a cause for great concern as inflation tends to affect the spending power of customers immediately, thereby having a negative reverse knock-on effect on the demand for the largely intermediate products of the M&E sector,” he explained.
The StatsSA data indicate that the annual consumer price inflation was 5,1% in July 2018, up from 4,6% in June 2018. The CPI increased by 0,8% month on month in July 2018.
Until then, both the headline and core CPI had been trending below 5,0% in 2018 and were well within the South African Reserve Bank’s (SARB) target band of 3% – 6%. However, the current data have propelled the headline CPI above the 5,0% mark for the first time in 2018 and above the average of the lower and upper target band.
This, according to Dr Ade, is worrisome given that inflation, amongst other variables, is also an important factor on how the Bank’s Monetary Policy Committee (MPC) members may vote in an upcoming meeting on interest rates next month.
“In an economic environment of continuously rising intermediate input costs, it will be prudent for the MPC to leave interest rates unchanged next month in order to stabilize rising intermediate costs and boost domestic demand. This is especially given that the CPI is still within the Bank’s target range,” Dr Ade concluded.
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