Prepare for interest rate hikes

PRODUCER INFLATION is continuing its upward spiral, according to figures released last week – and domestic inflation now well outstrips the imported element. Producer prices rose by 7.5% year-on-year (y/y) in June from 5.9% y/y in May. Imported and domestically produced goods’ prices rose by 6.8% and 7.6% respectively. “This exceeded most analysts’ expectations,” Standard Bank economist, Elna Moolman, told FTW, “and paves the way for continued price pressure.” However, the bulk of the contribution came from isolated sources: electricity and oil prices. “So,” she added, “although this pressure is likely to filter through to consumer prices, the outlook is not dire at this stage.” Further monetary policy tightening is anticipated and Moolman was expecting the SA Reserve Bank (SARB) to hike interest rates by 0.5 percentage points as this issue went to press. This is likely to be followed up with a similar hike in October, she said.