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Food, transport prices propel inflation to 9-month high

Dec 14 2016 13:13
Thembisile Dzonzi, Bloomberg News and Fin24

Johannesburg - South African inflation accelerated to the highest level in nine months in November, boosted by increases in food and transport prices.

The inflation rate was 6.6% compared with 6.4% a month earlier, Statistics South Africa said on its website on Wednesday. The acceleration is in line with the 6.6% median estimate of 17 economists surveyed by Bloomberg. Prices climbed 0.3% in the month.

Prices of food and non-alcoholic beverages, which comprise 15.4% of the index, climbed 11.6% from a year earlier, while fuel costs rose 5.6%.

“We are still seeing sticky domestic food prices,” Jeffrey Schultz, an economist at BNP Paribas Securities in Johannesburg, said by phone on Wednesday.

Price growth has been near or exceeded the upper end of the central bank’s 3% to 6% target band since the start of the year as the worst drought in more than a century and a weaker currency put pressure on consumer prices. Inflation expectations have declined in the past month, leaving some room for the Reserve Bank to support an economy that will probably expand at 0.4% this year, the bank said on November 24.

The Reserve Bank last month left interest rates unchanged for a fourth straight meeting this year, even as it warned that risks to inflation may force it to reassess its call that the policy-tightening cycle is near an end. The bank said inflation will peak at an average of 6.6% in this quarter, then slow to 5.8% next year and 5.5% in 2018.

Peter Brooke, manager of Old Mutual Flexible Fund at Old Mutual Investment Group, told Fin24 that with inflation close to the peak, it is expected to fall next year. With inflation falling, the reserve bank should cut rates. 

Core inflation, which excludes food, non-alcoholic beverages, gasoline and electricity costs, was 5.7% in November, matching the median estimate by 16 economists compiled by Bloomberg.

The rand was little changed at R13.6213/$ at 10:51 in Johannesburg on Wednesday. Yields on rand-denominated government bonds due December 2026 rose 1 basis point to 8.94%.

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