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Consumer inflation drops nearly 1% on significant fuel price cuts

by , 18 February 2015

Earlier today, Stats SA released its consumer inflation data for January. The data showed that inflation eased sharply from December to January.

The main factor behind the drop in inflation was the lower fuel price.

Let's take a closer look at what the data showed…

Consumer inflation for January came in at 4.4%

Consumer inflation, as measured by the consumer price index (CPI), “slowed sharply to 4.4%” last month, reports Fin24. That’s down 0.9% from the 5.3% reported for December.

Looking at the data from December to January, prices fell 0.2%, adds Fin24. This is the same month-on-month fall as seen between November and December.

The main factor pushing inflation down was a hefty fall in the price of crude oil from June last year to January, says IOL. This has benefited local fuel prices, which have followed the oil price lower.

This is the “fifth consecutive month” that inflation is within the Reserve Bank’s target range of between 3% and 6%, notes BDLive. Also helping inflation out was “slower increases in food inflation”.

Consumer inflation is at its lower level in nearly four years

This brings inflation to “its lowest level since April 2011,” says iAfrica. And it looks likely that February’s CPI will also fall. Nedbank expects this as “significant fuel price decreases continue to filter through”.

Lower inflation means that the chance of the Reserve Bank hiking interest rates this year is low, says BDLive. But, as economist Francois Stofberg of the Efficient Group points out, easing in inflation will decelerate as oil prices are now climbing and the rand is weaker.

Looking at the core inflation rate, it rose from 5.7% in December to 5.8% last month, adds IOL. Core inflation “excludes food, non-alcoholic beverages, gasoline and electricity costs”.

Annabel Bishop, the chief economist at Investec, says with petrol prices likely to rise next month, inflation will stop falling, adds BDLive. She also says that food price inflation could start to rise “as a result of drought conditions”.

So as expected, consumer inflation has come out much lower for January. But with the oil price continuing to rise and the rand trending weaker, the current lower rate of inflation could be short lived.

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Consumer inflation drops nearly 1% on significant fuel price cuts
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