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February inflation accelerates

Mar 20 2013 10:18 Reuters

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Johannesburg - South Africa's headline consumer inflation accelerated above expectations to 5.9% year-on-year in February, from 5.4% in January, Statistics South Africa said on Wednesday.

Inflation was at 1.0% on a month-on-month basis in February compared with 0.3% in January.

Economists had expected inflation to come in at 5.6% year-on-year and 0.8% month-on-month in February. 

Economist George Glynos said: "This begins to give the Reserve Bank a bit of a headache in the sense that they have got an inflation mandate which they need to look after. They will probably talk about core inflation still remaining under control but the reality is that the weak rand is starting to exert meaningful pressure.

"It will reinforce the likelihood that they will not be decreasing rates any time soon."

Kadd Capital economist Elize Kruger said: "This means there is no longer any option of a rate cut any more. The March figure is now likely to come in higher than 6%, breaching the level sooner than expected."

The rand was at R9.25 against the dollar at 08:08 GMT, from R9.24 before the data was released at 08:00 GMT.

The yield on the 2026 bond fell to 7.47% from 7.48% while that for the shorter-dated 2015 paper rose marginally to 5.475% from 5.47%.

Analyst Peter Worthington said: "It shows that the central bank is in a tight spot and it supports the case that there's not going to be any cut in rates. They're caught in a difficult bind between rising inflation and an economy that's slowing."

Nedbank economist Busisiwe Radebe said: "It won't have an impact on today's rates numbers. The governor said in Italy that there is no room to cut any more rates and we can see it on the 5.9%. She also needs to balance struggling growth with this higher inflation.

"Our view is that interest rates are going to remain at this level for most of this year. We might see a reversal of policy late this year or early next year."

Statistics South Africa has changed the weightings in its consumer price index basket to give a greater weight to petrol and electricity prices.

The Reserve Bank was able to cut interest rates for the first time in 20 months in July partly because of softer-than-expected inflation prints.

It has left rates unchanged in the three meetings since, but said the risks to the inflation outlook were on the upside with a weak rand exchange rate and expected higher wages posing the main risk.

Governor Gill Marcus will announce the next move on rates from 10:00 GMT.

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