South Africa's targeted Consumer Price Index (CPIX), excluding mortgage rate changes, slowed for the second consecutive month to 12.4 percent year-on-year in October, indicating that there might be a cut in interest rates.
According to data released by Statistics South Africa (Stats SA) on Wednesday, the CPIX is down from 13.0 percent in September. This is the second monthly decline after the record 13.6 percent registered in August.
However, this is also the 19th month running that CPIX has been above the 6 percent upper target limit. The previous all-time high before August this year for CPIX was the 11.3 percent set in 2002.
CPIX is used by the South African Reserve Bank for its inflation targetting.
On a monthly basis, Stats SA said CPIX was at 0.2 percent in October, after it increased 0.1 percent month-on-month in September.
Further the headline Consumer Price Index (CPI) was recorded at 12.1 percent when compared to 13.1 percent in September.
"This lower headline rate at October 2008 can be explained by decreases in the annual rates of change for the CPI for fuel and power, transport which was mainly due to a decrease in the price of petrol, food and housing which decreased mainly due to lower annual rates of increase for interest rates on mortgage bonds and rent, said Stats SA.
Mike Schussler, an economist at T-Sec, said of the 12.4 percent figure: "It is a pretty good number that indicates that there is a chance we may see a rate cut. We are now 120 basis points below the CPI peak.
"In November we expect CPI to be lower than 12 percent and by December lower than 11 percent. So we are looking at a rate cut in December already, but probably by only 50 basis points. The weak GDP figures on Tuesday left the door wide open for a rate cut."
Economist at Nedbank Carmen Altenkirch told BuaNews that the data gives further evidence that inflation has turned the corner, falling for the second month in a row.
She said while the data puts pressure on the Reserve Bank to cut rates earlier than February, the Bank would probably not cut it in December because it might give consumers the wrong the message to increase credit spending and put undue pressure on the Rand.
The central bank's Monetary Policy Committee (MPC) has lifted its repo rate by a total of 5 percentage points to 12.0 percent since June 2006 to try and reign in inflation, but left rates unchanged in August and October.
Despite the decrease in the CPIX, economists have warned South Africans to take extra care when spending their money and bonuses this festive season. "People, businesses and countries that are indebted will suffer badly," Economist Chris Hart said.
He advises that any additional income, such as bonuses, should be used to service debt.
South Africans have been hard-hit by an economic slowdown and high interest rates amid the global finance crisis. Recent figures from the University of South Africa's Bureau of Market Research recently found that South Africans are falling deeper and deeper into the debt trap.
The study also found that more than 80 percent of earnings now go towards paying off debt.
Earlier this month South Africa's saving rate dropped from 2.7 percent in 2001 to a negative rating of -0.5 percent. - BuaNews