CPI inflation for Aug 2011 remained unchanged at 5.3% year-on-year and came in lower than the market consensus of 5.5% . This was due to petrol and food prices rising less than expected and also the residual impact of electricity tariff surveys being much less than expected.

The year-on-year rate of increase for PPI in August 2011 continued its strong upward trend, printing at 9.6% year-on-year, in comparison with July's figure of 8.9% and the consensus forecast of 9.1 % . This was brought about by a substantial increase in the prices of international commodities, oil, food and electricity.

Private sector credit growth rose to 6.1 % in August, up from 5.6% year-on-year in July, although the consensus expectation was flat at 5.6% year-on-year. The increase was largely due to a moderate increase in credit extension to the corporate sector. However, household credit demand continues to remain weak due to a depressed market for residential buildings, high debt levels, low employment growth and low consumer confidence levels.

The Monetary Policy Committee (MPC) met this month, and kept the repo rate unchanged at 5.5%. It cited the current turmoil in the global economy, the faltering growth in SA and some upside risks on the inflation outlook as the reasons for its decision.

The FRA curve reversed its aggressive flattening trend and steepened slightly in the long end, but the market is still pricing in the possibility of a rate cut.

CPI inflation for May 2011 exceeded expectations at 4.6% year-on-year against an April figure of 4.2% year-on-year. The upside surprise came about as a result of a sharper than expected rise in food prices.

PPI increased by 6.9% year-on-year i May against and April figure of 6.6% year-on-year and a consensus expectation of 7.1% year-on-year. The key drivers of PPI inflation on the month were electricity, agricultural and food prices whilst the strong rand failed to counteract the overall rise.

Growth in private sector credit slowed unexpectedly to 5.2% year-on-year from 6.2% in April. The consensus was looking for a figure of 6.3% year-on-year. Corporate credit weakness was largely behind the decline in core Private Sector Credit Extentions, slipping to 3.7% year-on-year from 4.9% in April, while household credit rose to 6.9% year-on-year, virtually unchanged from April.

The FRA curve flattened slightly over the last month and indicates that the market expects rates to remain unchanged for longer than previously expected and for rate hikes to only begin in early 2012.

CPI inflation in February 2011 was 3.7% year-on-year versus 3.7% year-on-year in January and in line with consensus. Transport and health cost were the main drivers of the month-on-month increase with the fuel price increase being the main reason for the increase in transport costs. January PPI further increased to 6.7% year-on-year in February from 5.5% year-on-year in January largely due to higher commodity I prices. Manufactured goods inflation also picked up in February. Inflation will continue to increase in 2011 if international commodity prices I filters through to the domestic economy and it will be interesting to see how the Reserve Bank responds in light of the risks to the economic: recovery.

Private sector credit extension increased to 5.4% year-on-year in February from 5.0% year-on-year in January. Household credit growth in: the form of mortgages slowed and other loans and advances, which is mainly unsecured lending, increased to 8.4% year-on-year. Corporate I credit growth has been modest for the past few months but not enough to drive monetary policy tightening. However, we can see that corporates are rebuilding inventories again which suggests some faith in economic recovery.

The Monetary Policy Committee of the South African Reserve Bank left interest rates unchanged at 5.5% which was in line with consensus. The SARB revised its inflation forecast for 2011 upwards to 4.7% from 4.6%. The upward risk to inflation emanates mainly from oil, food and administered prices.

CPI inflation in November was slightly above expectations printing at 3.6% year-on-year versus 3.4% year-on-year in October. The upside surprise stemmed mainly from slightly higher than anticipated food inflation, although this was mitigated in part by the disinflation impact of the strong Rand. Most components of inflation were either steady or slightly higher indicating that inflation has troughed and is turning a corner.

November PPI also exceeded expectations coming in at 6.2% year-on-year from 6.4% in October (the consensus expectation was for a number closer to 6.0% year-on-year) with higher than expected and broad-based pressure in the mining category providing the impetus. There was very little price pressure from categories with a direct bearing in consumer inflation.

Private sector credit extension continued to expand at a moderate pace, increasing by 4.60% year-on-year compared with the October number of 5.11% year-on-year, showing signs of a tentative pickup in momentum which was absent in preceding months. Corporate activity still remains weak although the data indicates that the economy continues to grow at a modest pace.

The next MPC meeting is scheduled in the third week of January, and with the data showing tentative signs of recovery, it is unlikely that further monetary easing will be considered.