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October inflation quickens to 5.6%

Nov 21 2012 10:41 Reuters

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Johannesburg - Headline consumer inflation quickened to 5.6% year-on-year in October from 5.5% in September, Statistics South Africa said on Wednesday.

Inflation however slowed to 0.6% on a month-on-month basis from 0.9% in September.

Economists had expected prices to rise by 5.4% year-on-year and by 0.4% compared with the previous month.

Said ETM managing director George Glynos: "There is a gradual increase in price pressures. Core hasn't moved much but we expect the bias is to the top-side now, so we could nudge closer to the 6% mark by the end of the year. Food looks like a big contributor. So for now this probably puts expectations of a rate cut on hold."

"We expected it to come in slightly higher than consensus," said Ilke van Zyl, economist at Absa Capital.

"Basically most variables in the economy currently are pointing to higher inflation, least of all not being the weak exchange rate.

"It is expected and it shows that we are in an upward trending inflation environment. Our forecast is that interest rates will remain unchanged, this higher inflation data just supports our view."

Elna Moolman of Renaissance Capital said the figures are slightly higher than expected. "It seems as if this is again because of strong food inflation which was reasonably broadbased, so this upside surprise combined with upside inflation risks in the coming months supports our view that the Reserve Bank will not cut interest rates again.

The rand initially weakened against the dollar but came back to R8.9110 by 10:22 from R8.9175 before the data was released at 10:00. The yield on the benchmark 2026 bond  was at 7.615% from 7.605% prior to the release.

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

It left rates unchanged in September, saying the risks to the inflation outlook were more or less balanced, with higher food and oil prices posing the main upside risk.

The bank also said wage settlements in the mining sector, which was hit by strikes from August, risked setting a precedent for wage demands generally in the economy.

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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