Statistics South Africa shows December headline inflation at 6.3% year-on-year (y/y), from 5.8% y/y in November 2009. On a monthly basis the increase came to 0.3% month-on-month (m/m) from no growth in the previous month. This increase was driven by an increase in transport costs and housing and utilities. Food inflation dropped 0.3% m/m. Goods inflation stood at 5.5% y/y, up from 4.5% y/y in the previous month, while services inflation slowed marginally from 7.4% y/y to 7.2% y/y. For the year as a whole headline inflation slowed to 7.1% y/y in 2009, down from the previously targeted consumer price index excluding mortgage costs (CPIX) figure of 11.3% y/y for 2008.
Significance: December marks a high survey month, with several services being surveyed. These include owners' equivalent rent, actual rentals, domestic workers' wages, and public transport fares. These alongside a low base effect resulting from dropping gasoline (petrol) prices in December 2008 compared with rising fuel prices in December 2009 pushed the inflation rate to above the upper target of the inflation-targeting band. IHS Global Insight expects, however, inflation to return to within the target band no later than March 2010 as slowing food prices and weak demand along with positive effects from the strong currency filter through to domestic prices. Improved growth prospects both globally and locally along with second-round effects following stellar electricity tariff increases in the economy are expected to exert upward pressure on prices towards year-end.
