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Petrol pushes inflation over 6% target

Aug 21 2013 12:22 Reuters

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Johannesburg - South Africa's headline consumer inflation breached the ceiling of the central bank's target band in July, overshooting market expectations as higher fuel prices weighed on consumer prices.

Headline inflation in July hit 6.3% year-on-year, accelerating from 5.5% in June, data from Statistics South Africa showed on Wednesday.

The data helped push the rand to more than 1% weaker versus the dollar.

On a month-on-month basis, July CPI stood at 1.1% compared with 0.3% in June, Statistics South Africa said.

The market had expected inflation to quicken past the central bank's 3% to 6% target range, but at a slightly lower rate of 6.2% year-on-year, and for month-on-month CPI to quicken to 0.9%.

"This jump was to a large extent driven by the sharp increase in petrol prices in July, but there was also broader-based pressure. The data does not change our view that interest rates will remain steady until 2015," said Elna Moolman, an economist, Macquarie First South Securities.

A weak local currency resulted in petrol prices rising to R13.23 a litre in July from R11.86 at the start of the year.

The rand has fallen 21% against the dollar since the start of the year and dealers expect that a sell-off of emerging market assets could push the local currency back to a four-year low of R10.36/$, last tested on June 11.

Economists have said the central bank is unlikely to move on interest rates at its next rate-setting meeting in September, however the risk of a rate hike is heightened by the inflationary pressure.

"It seems that the underlying bias is skewed towards a hike given that the persistent message from the MPC (Monetary Policy Committee) has been the prevalence of upside inflation risks," said Anisha Arora, an emerging market analyst at 4Cast.

The central bank forecast at its July meeting that inflation would breach its 3% to 6% target at the 6.3% level before returning within the target by year-end.

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inflation  |  petrol  |  economy
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