Interest rate could rise further despite easing of inflation, warns economist

Statistics South Africa announced on Wednesday that food prices increased at the fastest pace since April 2009 due to the shortage of electricity.

This while headline consumer inflation slowed to 6.9% in January from 7.2% in December.

The good news is world food prices fell in January for a 10th consecutive month, and are now down 18% from the record high they hit last March following Russia's invasion of Ukraine, the United Nations food agency said.

However, there are warnings that dozens of countries are still experiencing double-digit food inflation, leading to rising food insecurity and undernourishment.

Jammine says the fall in food prices is partly due to Russia allowing Ukraine to export grain again, and unless it blocks those ports we could see prices of main commodities remain lower. 

“We are expecting the inflation to decline from now on because the big jump in prices took place last year. In order for inflation to remain at elevated levels you have to have equally large jumps in prices this year and that is not happening at the moment.

“The rate of increase in all manner of prices this year is lower than it was last year or should be lower than it was last year.”

But he warns that the easing in consumer inflation will not necessarily lead to the Reserve Bank keeping the repo rate steady, as the US Federal Reserve has indicated that it could raise interest rates further.

“One cannot say with conviction that the rising trend of interest rates is over yet. On the contrary I think there’s, especially given that the Americans have indicated that they are going to raise interest rates further, there is a general feeling that interest rates in South Africa might also still need to rise a little further. We’re not talking about more than about a quarter percent or a half percent at most.”

The Reserve Bank’s Monetary Policy Committee is set to meet again at the end of March.

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