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Inflation edges up in December

Jan 23 2013 10:35 Reuters

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Johannesburg - Consumer prices in South Africa edged higher in December, posing a headache for the country's central bank as it meets to discuss efforts to kick-start the economy.

Statistics South Africa reported that the consumer price index increased 5.7% from the level a year ago, higher than the 5.6% rate seen in November.

Prices for food, housing and transport all rose, further pressuring hard-hit South Africans.

The data comes as the South African Reserve Bank huddles to discuss what they can do to turn lacklustre growth into something more likely to address sky-high unemployment.

But the increase in inflation gives the bank a little less wiggle room to juice the economy through a cut in interest rates.

A rate cut could cause further price rises and edge the country closer toward a toxic mix of high prices and low growth known as stagflation.

In the third quarter of 2012 the South African economy grew at a measly 1.2%.

The central bank's decision is expected on Thursday.

Annabel Bishop, group economist at Investec said: "The mild rise in the CPI on the month was due to price pressure coming from the housing and utilities component as the rising cost of living in South Africa due to higher administered prices ranging from double digit electricity and water tariff increases and higher rates and taxes pushed up the CPI.

"We continue to believe that the Reserve Bank will leave interest rates unchanged this week, as recent weakness in economic growth was due to the strike action and not a broad based slowdown.

"CPI inflation has risen but the next reading will be impacted by the rebasing and re-weighting exercise that will generate a new CPI from 2013."

The rand firmed slightly R8.8879 against the dollar at 08:17 GMT from R8.89 before the data was released at 08:00 GMT.

The yield on the 2026 benchmark bond nudged higher to 7.275% from 7.265% prior to the data.

Statistics South Africa has changed the weightings in its consumer price index basket to give a slightly lower weighting to food, while petrol and electricity weightings will rise.

The new weights will apply from January 2013.

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