Johannesburg, 21 November 2018 – The increase in the official inflation number released by Statistics South Africa (StatsSA) today does not bode well for hard-pressed businesses in the Metals and Engineering (M&E) cluster, which continue to face headwinds amid low levels of domestic demand, a generally weaker exchange rate and increasing operational expenses, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
According to the StatsSA data, the annual Consumer Price Inflation (CPI) increased to 5.1 percent in October 2018, from 4.9 percent in September 2018. The index also registered an increase of 0.5 percent on a month-on-month basis in October 2018.
“An inflationary environment will definitely add to the pressure that local businesses are facing, given its direct impact on consumer demand for goods. Moreover, the generally high petrol price invariably adds to businesses’ logistics costs, and this, in turn, negatively impacts on the cost of doing business. The increase in inflationary pressure is a huge challenge for companies trying to improve on operational efficiency and margins,” SEIFSA Economist Marique Kruger said.
She added that with the official inflation data now trending even closer to the upper band of the South African Reserve inflation target of 3% to 6%, SARB Monetary Policy Committee members find themselves in a difficult position when they meet tomorrow.
“The decision on whether or not to continue with an accommodative monetary policy stance will be a fiercely contested one, given the official mandate of the SARB to contain inflation from galloping away,” said Ms Kruger.
She said that given the current state of the economy, leaving the repo rate unchanged will help in reducing borrowing costs, thereby providing impetus for a rebound in domestic growth.