All grades of petrol are set to drop by 67 cents a litre at midnight on Wednesday.
JOHANNESBURG - Inflation slowed more than expected to 5.3 percent year on year in December from 5.8 percent in November mostly reflecting the effects of lower fuel prices‚ Statistics SA figures showed on Wednesday.
The latest inflation data support the case for the Reserve Bank to leave interest rates unchanged next week.
December was the fourth consecutive month that inflation was within the 3 percent - 6 percent target range.
Inflation fell by 0.2 percent between November and December. It averaged 6.1 percent for 2014. This is higher than the corresponding average annual inflation rate of 5.7 percent for 2013.
Core inflation‚ which takes out food‚ petrol and energy costs‚ also moderated to 5.7 percent year on year from 5.8 percent in November.
The food and non-alcoholic beverages index decreased by 0.4 percent between November and December while the annual rate slowed to 7.2 percent in December from 7.6 percent in November.
The moderation was driven by decreases in prices of vegetables; fish; cold beverages; bread and cereals; milk‚ eggs and cheese. Meat and fruit prices increased.
The housing and utilities index increased by 0.5 percent between November and December mainly due to a 0.9 percent increase in actual rentals for housing and a 0.7 percent increase in owners’ equivalent rent. The annual rate decreased to 5.7 percent in December from 5.8 percent in November.
The transport index decreased by 1.6 percent between November and December mainly due to a 69c a litre decrease in the price of petrol.
Following are the reactions of leading economists:
Investec chief economist Annabel Bishop:
“The R1.10c/litre decline in the petrol price over 2014 has been the key driver in the 1.3 percent year on year drop in CPI inflation from its 2014 peak of 6.6 percent, with the December&39;s 5.3 percent even coming out below the market expectation of 5.5 percent.
"CPI inflation is likely to average around 4.5 percent in 2015‚ automatically raising South Africa’s real interest rate in 2015 without an interest rate hike.”
Economists.co.za economist Mike Schussler:
“It is a very positive story and is certainly going to help the bond market. Interest rates are unlikely to increase which is good news for the consumer and the economy. The huge drop in petrol prices really helped bring down the inflation rate substantially.”
KADD Capital economist Elize Kruger:
“It is a positive surprise. It means sizeable wages increases which will boost household spending and help offset troublesome developments such as higher electricity tariffs and potential tax hikes.”
Macquarie Securities economist Elna Moolman:
“The downside surprise to inflation reinforces our view that interest rate hikes are not imminent and the risk to forecast rate hikes are biased towards an even more gradual hiking cycle.”
Nedbank economist Busisiwe Radebe:
“Food prices surprised relative to our forecasts. We had expected monthly food prices to fall by 0.1 percent in December but they declined by 0.4 percent.
"Food prices were the main reason inflation fell by more than what was expected last month. We expect the petrol price to continue driving inflation lower in the coming months. CPI may come down as low as 4 percent in January with upside risks being what happens to the rand and the oil price.”