Inflation stays out of target band

Johannesburg - The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank (Sarb) for its inflation target, was 6.2% year-on-year (y/y) in January from 6.3% y/y in December, Statistics South Africa (Stats SA) said on Wednesday.

CPI was at 0.3% month-on-month (m/m) - unchanged from December.

CPI was expected to have registered 6.4% year-on-year (y/y), according to a survey of leading economists by I-Net Bridge. Forecasts among the economists ranged from 6.0% to 6.5%.

This is the second month running that CPI has edged higher than 6% after previously slipping back below the 6% radar level for two months, but this rise was not unexpected by the market.

Investec economist Annabel Bishop said: "CPI inflation remained outside the target range in January, due to seasonal and statistical base effects. In particular, many companies institute price increases at the start of the year, with the surveyed insurance, financial and other services components which make up a significant share of the index, relatively demand inelastic and likely a source of upward price pressure.

"The Nersa [National Energy Regulator of SA] ruling today will provide clarity on the electricity price increase this year, which could range from 25% to 35%, but more likely will be closer to 25%.

"However, any increase in the electricity price above 6% will place upward pressure on inflation and the double-digit price increase will contribute to keeping CPI inflation around if not above the 6.0% upper limit of the inflation target.

"Today's outcome does not change our view either in terms of the future path of interest rates or inflation. We believe interest rates will remain unchanged this year, with a possible 50 basis-point hike in October as monetary policy is returned to a more neutral stance, should the strengthening economy warrant it."

- I-Net Bridge