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June inflation confounds economists and the man in the street: Chris Becker – ETM Analytics

‘Food prices in the CPI actually rose slightly in excess of 6% year on year.’

HILTON TARRANT: Consumer price inflation confounded economists and the man in the street – 5.5% year on year in June versus 5.6% in May. The market was expecting a year-on-year increase of somewhere between 5.6 and 5.8%.
   Chris Becker, market strategist at ETM Analytics, joins us. Chris, I say the man on the street because you and I are not seeing inflation of 5.5%. Things we bought last year in June are not only 5% or 5.5% more expensive this year.

CHRIS BECKER: Ja. I think the consumer price index – what it’s measuring is a very broad array of consumer goods and services. They are looking at 70 000 different items that they are measuring on a month-to-month basis, and they are sort of aggregating the data and coming up with an overall inflation rate for the entire country.
   There are all sorts of issues with this and as a result what we are going to tend to find is that certain people, most people, most of the time are not experiencing that specific inflation rate. That’s one of the challenges with trying to aggregate data as StatsSA does.

HILTON TARRANT: Chris, in the month StatsSA points to subdued food prices as one of the reasons for the slight softening in inflation. One wonders if that’s some sort of statistical anomaly because food prices seem to not necessarily only be increasing by this amount.

CHRIS BECKER: Food prices in the CPI actually rose slightly in excess of 6% year on year, if I recall correctly. The real detractor from the overall inflation rate was the decline in public transport prices; although I’ve actually got to correct myself – it wasn’t a decline in public transport prices but the rate of increase was slightly less than in the month of May. And that was the real anomaly because what’s interesting there is that petrol prices have been going up but public transport prices are coming off. And that’s the one thing that we can’t really reconcile. There are some question marks there, and I think that could correct over time.

HILTON TARRANT: Chris, as far as household or individual wealth is concerned, we tend to have salary and wage adjustments in line with inflation. So typically we would have received somewhere around a 5% or 6% increase if we were lucky earlier on this year. What does that mean with regard to our buying power, our purchasing power in the months ahead?

CHRIS BECKER: Hilton, I think the really interesting story here is what’s going on, not narrowly focusing on consumer price inflation, but if we just step back a bit and we look at overall prices in the economy – and by this I mean what is the stock market doing and what are raw commodity prices doing, for instance. So we are looking at the consumer price inflation rate – it’s a very narrow measure, only looking at consumer prices – that’s up 5.5% from a year ago.
   But if you look at the stock market the JSE all-share index is up 25% at the start of June compared with the start of June in 2012. And that’s a huge inflation rate. So if you are benchmarking salary increases against the consumer price index you are actually becoming less better off; you are actually becoming a lot worse off in terms of the purchasing power that that salary has in terms of accumulating capital and assets over time. I think that’s the real interesting story.
   And the question to me is are we not perhaps focusing on too narrow a measure of inflation here and setting something of crucial important to the overall economy, the interest rate, based on a metric that’s not entirely representative of what’s going on in the overall price environment in South Africa.

HILTON TARRANT: Thanks to Chris Becker. David, 5.5%.

DAVID SHAPIRO: Much more than that. I agree with him. I’m not sure about the stock exchange.

HILTON TARRANT: When last did you go shopping for food?

DAVID SHAPIRO: Me? I’ve got no comparison. The times that I do buy foods, the period in between – are so far [apart] that I can’t remember when I last bought them. But when I buy chocolate or a Kit Kat, then I realise. But I think he’s right. I think the important side of inflation in everything that we utilise here – we are going to start feeling it.
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