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Inflation climbs to 7%, highest rate since 2009

Latest figure gives some justification for the Reserve Bank to follow through with further consecutive hikes – analyst.

South African inflation accelerated to 7% in February, the fastest pace since June 2009, adding to the central bank’s policy dilemma of rising consumer prices and slowing economic growth.

The inflation rate jumped from 6.2% a month earlier, Pretoria-based Statistics South Africa said on its website on Wednesday. The median of 21 economist estimates compiled by Bloomberg was 6.8%.

The rand’s 9.1% decline against the dollar in the past six months and the most-severe drought in more than a century are driving import costs and food prices higher. The Reserve Bank raised its benchmark repurchase rate by 25 basis points to 7% last week, the second increase this year, and said it expects price growth to exceed its 3% to 6% target band until 2017. The bank cut its growth forecast for this year to 0.8%, which would be the weakest since the 2009 recession.

“This reiterates the stagflation dilemma that the Sarb [South African Reserve Bank] finds itself in,” Mohammed Nalla, head of strategic research at Nedbank Group, said by phone from Johannesburg. “This kind of inflation can certainly give some vindication to the Sarb’s prior decisions to hike interest rates and also gives them some justification to follow through with further consecutive hikes. Our official view remains for a further 25 basis points at each of the next two meetings.”

Yields on benchmark government rand-denominated bonds due December 2026 rose 1 basis point to 9.31$ after the inflation report, set for the highest closing level in a week. The rand was 0.2% weaker against the dollar at 15.2490 by 10:56am in Johannesburg.

Inflation on food and non-alcoholic beverages surged to 8.6% in February from 6.9% in the previous month, according to the statistics office. Transportation prices rose 8.7% compared with 5.5% in January.

Core inflation, which excludes food, non-alcoholic beverages, gasoline and electricity costs, quickened to 5.7% in January, from 5.6%.

“Food price pressures, driven by the drought and the depreciated exchange rate, have intensified by more than previously forecast and remain a significant upside risk to inflation,” central bank Governor Lesetja Kganyago told reporters on March 17.



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There is absolutely no way that inflation is 7%.

Statistics South Africa are thumb sucking a figure because Moodys is here to turn South Africa into Junk status. I would love to view a list of items that are considered when stats SA calculate the inflation figure. Another useless bunch of fools costing taxpayers a heap of money for nothing.

Surely the cost of electricity and indirect taxes fall into this basket of consumer goods! Or does this basket exclude costs the average South African can’t afford?

When people questioned the low inflation rate in the past one of the reasons given was that interest rates had dropped substantially.Just wondering if the prime rate increasing from 9.25% in July 2015 to 10.5% in March 2016, an increase of nearly 14% in 9 months, has been taken into account!

End of comments.





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