Defying experts’ expectations, South Africa’s inflation rate rose to 6 percent last month, the top of the central bank’s target.
Inflation accelerated from 5.9 percent in February, Statistics SA said. The median estimate of 21 economists surveyed was 5.9 percent. Prices rose 1.3 percent in the month.
Reserve Bank officials expect that inflation will exceed the upper threshold of the central bank’s 3 percent to 6 percent inflation target band in the second quarter of this year, peak at 6.6 percent in the fourth quarter and drop below 6 percent by the second quarter of next year.
Inflation close to the upper end of the Reserve Bank’s 3 percent to 6 percent target band prompted policymakers to raise borrowing costs for the first time in more than five years in January. While the rand has gained 5.3 percent against the dollar since then, allowing the bank to keep the benchmark interest rate at 5.5 percent last month, governor Gill Marcus said on April 8 the “accommodative” policy stance could not be maintained indefinitely.
“The inflation outlook remains poor in the short term as the rand is still vulnerable despite its recent strengthening,” Busisiwe Radebe and Dennis Dykes, economists at Nedbank Group in Johannesburg, said in an e-mailed note to clients. “Given the need to balance growth prospects with higher inflation, we anticipate that rates will rise by 25 basis points at two of the next four meetings.”
Inflation would probably average 6.3 percent this year and peak at 6.6 percent in the fourth quarter, Marcus said on March 27. The bank forecasts inflation will breach the upper end of its target band in the 12 months through the second quarter of 2015.
Price pressures may be spreading in the economy, with the core inflation rate, which excludes food, non-alcoholic beverages, fuel and energy, rising to 5.5 percent last month from 5.3 percent in February.
The rand weakened for a second day, softening 6c to be bid at R10.6098 to the dollar by 5pm in Johannesburg.
By 12.56pm, the yield on the 2026 bond had risen 13 basis points to 8.51 percent. One-year interest rate swaps, used to lock in borrowing costs, rose 4 basis points to 6.4 percent.
“The rise in inflation will most likely impact growth in the first quarter, which will be pretty weak,” Elize Kruger, an economist at KADD Capital, said. “The central bank, being data dependent, will consider both at next month’s monetary policy committee meeting” and might postpone any rate increase to the second half of the year, she said. – Bloomberg