Given the high levels of unemployment and stress experienced by workers with high levels of debt, UASA believes the South African Reserve Bank should seriously consider lowering the repo rate with another 50 basis points – without the fear of adding to CPI.
The subdued economic growth rate, high unemployment rate and international uncertainties significantly reduce the chance of higher CPI from another reduction in the repo rate. On the contrary, a further reduction in the repo rate would significantly contribute to economic recovery and job creation.
The CPI for September nudged up to 5,7% (YoY) from 5,3% in August. The increase is still driven by prices not sensitive to changes in interest rates. In September, the interest rate insensitive CPI increased to 7,3% from 7.1% in August. However, the interest-rate-sensitive CPI also increased - to 3,8% from 3,4% in August. Nevertheless, the interest-rate-sensitive CPI is still well within the inflation targeting band of 3% to 6%.
These numbers, combined with the low growth in household credit, show that the current low level of interest rates are not contributing to a consumer spending spree and, as such, is not feeding into high inflation. Rather, cost pressures primarily driven by government inefficiencies spilling over into high price increases such as high electricity tariffs and municipal rates are driving CPI higher.