Inflation stays stable at 8.4%

Statistics SA released the Consumer Price Index or the Inflation figures for April 2009 today May 27th 2009. These figures show that inflation has dropped by 0.1% to 8.4%. Average prices increased by 0.5%. This is not totally unexpected and can be seen as the long tail of inflation targeting that has been pursued by the Reserve Bank. Interest rate cuts have an effect on inflation but this effect takes time to manifest and the MPC will be announcing the new interest rates on Thursday 28th of May 2009. GDP is down and this will spur the government to try to kick start the economy. So what has gotten cheaper or not?

• Food and non-alcoholic drinks increased 0.5%
• Bread and cereal decreased by 0.3%
• Petrol increased by 4.9%

The inflation figures when you pick them apart show that the sectors that are getting more expensive most quickly include the petrol price, increasing by 4.9% and hot beverages at 4.7%. These kinds of sectors don't respond as quickly to rate cuts, as there are more inputs to go through before the effect is felt. The Monetary Policy Committee has already cut interest rates by 350 basis points or 3.5% since December 2008 and these cuts are starting to manifest in the economy now, although it seems that with such a small change that the major effects of inflation targeted rate cuts have reached the end of their usefulness.

In order to deal with the economy at the moment using a budget planner is key. Stubborn sectors such as food and transport are still not in parity with the inflation rate and you should budget more for food than before rather than less as you would expect if prices are going up more slowly. These savings are not being passed onto the consumer and we have all got less spending money than previously. So this means we have to be ultra careful with our money if we are to survive the rest of the year before the expected turnaround sets in.