By Mamello Matikinca, FNB Economist
Headline inflation positively surprised, rising 6.3% y/y in February from 6.6% in January. Our bearish forecast relative to the outcome was underpinned by a bearish view on long-term insurance. Indeed medical insurance rose 9.8% y/y, and, as such, miscellaneous goods and services contributed 1.1 percentage points to the headline number.
Food inflation continues to moderate, rising 10% in February relative to 11.2% in January. Bread and cereal prices continued to decelerate in February, rising 12.8% from 17.0% in the previous month.
Vegetable prices contracted 0.5% y/y from 4.7%. Meat prices, however, maintained an upward trajectory rising 9.9% from 8.9% in January. The 29c/l increase in petrol prices translated into a 7.2% rise in transport inflation
Today’s inflation print along with the positive outcome of the current account (which narrowed significantly in the final quarter of 2016) certainly leaves us with something to cheer about.
While the SARB’s outlook on inflation is more bearish relative to consensus, this will likely be revised in light of the data that has been released. As such, we do not rule out the possibility of an interest rate cut this year given the persistent rand strength.The market has largely priced in policy normalisation from the Fed. As such, we do not anticipate significant rand weakness, however, aggressive policy tightening in the US on the back of rising inflation remains a risk to the rand outlook.