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Rising inflation points to more rate hikes

Mar 23 2016 13:30

Johannesburg - Headline inflation quickened more than expected in February to its highest level in nearly seven years, adding pressure on the SA Reserve Bank (Sarb) to raise interest rates further despite weak economic growth.

Inflation hit 7% year-on-year in February from 6.2% in January, data from Statistics South Africa showed on Wednesday, the highest rate since May 2009.

"Today’s surprisingly high inflation figure will probably lead the Sarb to accelerate its programme of rate hikes," Capital Economics' Africa analyst John Ashbourne said.

"This will be very painful for an economy that is struggling to avoid recession."

Economists polled by Reuters had expected CPI to come in at 6.7% in February.

On a month-on-month basis, prices were up 1.4% after an increase of 0.8% in the previous month.

The rand recouped losses against the dollar after the data was released, trading at R15.2475 against the greenback from a session low of R15.2800.

The Sarb raised its benchmark repo rate by 25 basis points to 7.0% last week, after a 50 basis points hike in January, saying CPI would average 6.6% this year, above a 3% to 6% target band.

The rate hike came in spite of lower growth forecasts for SA.

The Sarb expects expansion of just 0.8% in 2016, slightly lower than the Treasury's forecast of 0.7%.

sa economy  |  inflation rate
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