December salaries spur demand in the new year as inflation gains to -2,19 percent
THE year on year inflation rate for the month of January 2016 gained 0,29 percentage points at -2,19 percent, improving marginally on the December 2015 rate of -2.47 percent.
Albeit still weak, the South African rand has been strengthening mildly against the dollar, following the interest rate hikes by the South African Reserve Bank, in response to the normalization of the US monetary policy by the Federal Reserve. This has somewhat eased the deflationary pressures in the economy while at the same time aggregate demand was boosted by the civil servants December salaries which were only paid out in January.
The month on month Food and Non Alcoholic Beverages inflation rate stood at 0,13 percent in January 2016, gaining 0.34 percentage points on the December 2015 rate of -0.21 percent.
Government’s recent move to introduced Value Added Tax (VAT) on nearly 40 imported basic food commodities that constitute the bulk of the consumer bread basket, products that until now have been excluded from the 15 percent tax, is likely to spur increases in essential food items in the near future.
The year on year Food and Non Alcoholic beverages inflation prone to transitory shocks stood at -3.96 percent. Year-on-year, fruits, oils and fats, milk, cheese and eggs subgroups registered declines of -6.35 percent, -5.76 percent and -5.92 percent in their prices respectively. Bread and cereals subgroup, which has the largest weighting in the food and non-alcoholic beverages band slowed by -4 percent from the January 2015 figure.
Year-on-year, the Non-food inflation rate was -1.34 percent largely on account of housing, water, gas and fuels which registered a -4.4 percent and also represent a large weighting in the non-food band. Clothing and footwear band fell -2.41 percent from the January 2015 figure and so did furniture and equipment band which slowed down by -3.27 percent.
Consumers reeling under the pressure of low disposable incomes continue to put off expenses that require huge outlays, and consumer spend continues to be devoted to basic goods and services like food, clothing and education. The government through the Ministry of Finance has started paying the 2015 civil service bonuses on a staggered basis, as the national treasury continues to face fiscal pressure. This will likely boost demand, although most civil servants are over borrowed and will likely use the money to pay off debts.
Month on month non-food inflation rate stood at -0.13 percent, shedding 0.08 percentage points on the December 2015 rate of -0.06 percent as the effects of the “January disease” were felt, with demand for services drying up marginally.
The month on month inflation rate in January 2016 was -0.05 percent gaining 0.06 percentage points on December 2015 rate of -0.11 percent.
The CPI for the month ending January 2016 stood at 97.02 compared to 97.07 in December 2015 and 99.19 in January 2015.
The negative inflation outlook is forecast to persist as inflationary pressures in the economy continue to weaken. Also adding to the deflationary pressures is the declining oil prices, as there is a glut in supply of the liquid, what with sanctions being eased in Iran, allowing its oil to flood the market. FinX