CPI increase 'lower than expected' - economists

He says markets had expected inflation to reach 3,3% in January.

Headline consumer inflation increased for a third consecutive month in January, Stats SA announced on Wednesday.

CPI quickened to 3,2% in January, up from 3% in December and 2,9% in November

Roodt says a gradual increase in inflation is on the cards for the coming months.

"It's likely that we will see a gradual increase in the inflation rate over the next couple of months, but I'm not too concerned about that. There are some technical reasons for that. One is that we've seen inflation coming down very, very low, much lower than expected, the last couple of months, and gradually, the base effect will come into play over the next couple of months, and that means purely from a statistical point of view, inflation is likely to keep on increasing a little bit. "

Meanwhile, Chief Economist at Econometrix Azar Jammine says the easing of consumer inflation is mainly due to the changes in some of the weights of the consumer price index.

"We've been expecting it to rise for purely statistical reasons linked to the fact that when you compare on a year-on-year basis, and fuel prices have started rising again, you're bound to see some pickup in inflation, but it's still very much at the lower end of the inflation target and offers the reserve banks some further scope to reduce interest rates over the next few months.

"I'm not convinced that they will do so immediately because in the United States as well, there's a reluctance to reduce interest rates in the face of tariffs on imports that are being imposed by President Donald Trump, which have raised fears of higher inflation. Nonetheless, I still think that there is scope during the course of the next six months for us to get another quarter per cent cut in our interest rates."

Following the postponement of the budget speech last week due to disagreements within the government of national unity over a proposed 2% VAT increase, Roodt says he can’t see the government raising taxes.

"I think politically, this is a no-go at this stage. If there actually was a VAT increase, that would have put upward pressure on inflation, and that could have meant that the Reserve Bank may have decided to keep interest rates unchanged for a longer period of time.

"As things stand now, I'm pretty sure there's not going to be a VAT increase, and it also means that despite the slight increase in inflation over the next couple of months, I still think that the Reserve Bank has room to cut interest rates a little bit."

Jammine concurred: "The budget speech itself won't impact the CPI immediately, but if the government were to abandon fiscal austerity and increase spending more than what has been hoped for, then I think that would have a message that inflation could rise later on by more than expected and the reserve bank would be reluctant under those circumstances to reduce interest rates further.”

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