23 March 2020 – Inflation ticked up slightly in February to reach its highest level in over a year, data from Stats SA showed on Wednesday
The figures come as the economy is firmly in the grip of efforts to contain the spread of the coronavirus. As of Wednesday morning, confirmed cases in SA rose to 116.
Annual consumer price inflation rose to 4.6% in February, up from January’s 4.5%, according to the agency. The increase was only marginally higher than market expectations, which had inflation staying steady at 4.5% — the midpoint of the Reserve Bank’s target range of between 3% and 6%.
The uptick notwithstanding, there is growing expectation that the Bank could move to make steeper rate cuts on Thursday, particularly as inflation is likely to be more subdued in the fallout from the virus.
Despite a weaker rand, plummeting oil prices are expected to feed into lower fuel prices in coming months. Meanwhile, expectations for global growth have soured dramatically as economies around the world have been hit by the virus.
“Even though inflation has increased in February, global concerns pertaining to Covid-19 and the decline in the price of oil is likely to have a deflationary effect going forward,” said Luigi Marinus, portfolio manager at PPS Investments.
A rate cut of 25bps was considered likely prior to President Cyril Ramaphosa’s declaring a national state of disaster on Sunday, and the effects of Covid-19 on SA’s economy intensifying. But economists are now seeing deeper cuts starting at 50bps.
“Given that these are unprecedented times we believe that the Reserve Bank will move away from their usual pattern of changing rates by 25 basis points and will instead cut rates tomorrow by 100 basis points and then by a further 25 basis points in May, after which the SA Reserve Bank is likely to take a wait-and-see approach,” said Nedbank in a note.
Though a cut in interest rates is expected to bring a level of relief to consumers and businesses, it is unlikely to be enough to turn economic activity around, which was already weak before the virus hit.
The government has, however, promised a package of economic measures to aid the economy — despite limited state resources for a fiscal stimulus. Comprehensive details on the plan are yet to be released, but on Tuesday the government outlined its first steps to support distressed companies through the use of surpluses in the Unemployment Insurance Fund (UIF).
Globally, several central banks and countries have stepped up efforts to support their economies, the latest of which includes a $1-trillion proposal from the US administration to help households, small businesses and big industries. Source (Business Day)