Johannesburg - Economists were quick to warn on Wednesday that the South African Reserve Bank (SARB) would now have no choice but to hike interest rates as inflation leapt a full percentage point.
Inflation for January came in at 6.2 percent, higher than the expected 6 percent and a full percentage point higher than December’s 5.2 percent year-on-year figure.
According to Statistics SA, on average, prices increased by 0.8 percent between December 2015 and January 2016.
The huge upward swing leaves the SARB with no choice hike rates as inflation will continue to creep up and is likely to breach the bank’s target rate of 3 to 6 percent says Investec.
South Africans were dealt a blow last month when SARB, citing inflationary pressures, moved the prime lending rate up 50 basis points to 10.25 percent. This was the third hike in a row.
FNB Senior Industry Economist Jason Muscat says the inflationary outlook does not bode well for consumers or retailers.
Also read: Drought ‘could push SA into recession’
He notes the January figure was worse than expected, but points out that last year’s figures were off a low base.
Goods inflation registered 6.5 percent, the first time since 2014 that it breached 6 percent, says Muscat.
“Services inflation also reached the 6 percent mark, reflecting not only rand weakness, but also the growing inability of businesses to absorb these cost pressures.
“Food and transport costs in particular are driving the number higher, a trend we expect to continue given the drought, slightly higher oil prices and persistent currency weakness,” Muscat adds.
Muscat says the figure - released just a week before the annual budget speech, suggests that SARB may opt to again raise interest rates, likely by 0.25 percent, at next month’s meeting.
Investec notes petrol,a key inflationary driver, was mainly unchanged in January.
Read also: SA’s consumer inflation quickens
Inflation will likely average 5.8 percent year-on-year in 2016 as the big petrol price cut building for March brings CPI inflation down to 6 percent year-on-year in that month, if not lower, says Investec.
Consumer price inflation is likely to dip to 5.4 percent midyear. However, the SARB believes CPI inflation will average 7 percent year-on-year in 2017, and so further interest rate hikes are likely, Investec notes
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