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Weak consumer demand contains inflationary pressures

Weak consumer demand contains inflationary pressures

Zorena Jantze
WITH consumer income increasingly coming under pressure, it comes as no surprise that the May annual inflation print comes in lower at 4.1% y/y compared to 4.5% in April.
As expected, transport inflation increased from 7.1% to 7.6%, with this increase attributed to pass-through effects of increased road user charges and increased pump prices.
This was however countered by downside pressures on prices of other categories such as food and non-alcoholic beverages category, which, surprisingly moderated to 4.7% from 5.5% in the previous month.

Pictured: FNB economic analyst, Daniel Kavishe. Photo: Contributed

FNB economic analyst, Daniel Kavishe stated that this was despite concerns that the persistent drought will exert upward pressures on food inflation. Similarly, the housing and alcoholic beverages and tobacco categories slowed down from 2.2% and 7.5% to 1.9% and 5.5% respectively.
Core inflation however retreated to 3.3% from 3.5% a year ago which supports the inherent weakness from the demand side.
“ It therefore comes as no surprise that the central bank has opted to keep interest rates accommodative at 6.75%. While the bank projects inflation to be contained at 4.5% for 2019, growth is expected to remain weak, with downside risks emanating from the prevailing drought, weak growth in neighbouring economies, and escalating global tensions weighing on commodity exports.: Kavishe summarised.
He added that as real sector data continues to disappoint, the MPC will be looking towards the first quarter GDP numbers for guidance regarding the effect of its current accommodative monetary policy.
Moving forward, Kavishe noted that he expect transport inflation to slow down as cost pressures ease owing to a falling Brent crude oil price. As such, we expect overall prices to retreat in response to lower transport costs and fragile consumer demand, which are likely to spill over into other inflation categories.

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