Feb. 27 (Bloomberg) -- South Africa's inflation rate unexpectedly rose in January, reaching its highest in almost five years and keeping pressure on the central bank to leave interest rates at a four-year high.

CPIX inflation, which excludes mortgage costs, accelerated to an annual 8.8 percent from 8.6 percent in December, Pretoria-based Statistics South Africa said. Inflation was expected to slow to 8.4 percent, according to the median estimate of 16 economists surveyed by Bloomberg. Prices rose 1.2 percent in the month.

Inflation has exceeded the central bank's 3 percent to 6 percent target range since April, prompting the central bank to raise the benchmark interest rate four times last year to 11 percent. Rising energy costs and the rand's 8.2 percent drop against the dollar so far this year may boost inflation, adding to speculation the bank may delay a rate cut, even as growth slows.

``Given expectations of sharp increases in petrol prices in February and March, it points to even higher inflation trends,'' said Monale Ratsoma, an economist at Absa Group Ltd., South Africa's third-largest bank by assets. ``The Reserve Bank's focus is going to be on the longer term outlook for inflation. We expect rates to remain flat this year.''

The rand fell as low at 7.528 against the dollar from 7.498 before the data was released, and was trading at 7.464 as of 5:13 p.m. in Johannesburg. The yield on the R153 government bond, due 2010, rose 2 basis points, or 0.02 percentage point, to 9.44 percent.

Inflation Forecast

Last month's inflation rate was the highest since March 2003, when prices rose an annual 9.3 percent.

The central bank has stuck to its forecast that inflation will peak at an average of 8.5 percent in the first quarter and drop into the target range by the end of the year, according to comments yesterday by Daniel Mminele, head of the bank's financial markets unit and a member of the Monetary Policy Committee.

The Reserve Bank will ``remain focused on the inflation target,'' Mminele said in a speech in London yesterday. ``The inflation outlook has deteriorated mainly on account of oil and food prices.''

Food prices, which account for about a quarter of the consumer price index, climbed an annual 13.6 percent in January, little changed from 13.9 percent in the previous month, the statistics office said.

Corn Prices

The price of white corn, a staple in South Africa, climbed 8.9 percent in the second half of last year, boosted by drought and higher international grain prices.

Inflation may accelerate after the government raised gasoline costs by 2.3 percent in February and plans to increase fuel levies and other taxes on alcohol and cigarettes in March. Crude oil surged 5.5 percent in New York this year, and reached a record $102.08 a barrel today.

The Reserve Bank left borrowing costs unchanged last month, even as inflation accelerated, citing a slowdown in consumer spending and concern that a power shortage will crimp economic growth. The economy will probably expand 4 percent this year, down from 5.1 percent in 2007, Finance Minister Trevor Manuel said on Feb. 20.

``While the Reserve Bank needs to contain inflationary pressure, it also needs to guard against an undue excessive tightening of liquidity conditions that could lead to recession and increased bad debts and financial risk,'' Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said in a note to clients.

Clothing Prices

Inflation was boosted last month after the statistics office started excluding discounted prices in clothing and footwear. Following the revision, clothing and footwear prices, which account for 4.1 percent of the CPIX index, rose an annual 0.6 percent last month, compared with a 7.1 percent drop in December.

While Statistics South Africa will backdate the changes to clothing and footwear costs to 2007, it won't revise inflation data, said Patrick Kelly, manager of consumer price data at the statistics office. The adjustment means that last year's average inflation rate of 6.5 percent was probably understated by between 0.2 and 0.3 percentage points, he said.

The headline inflation rate, which includes mortgage costs, rose to 9.3 percent last month from 9 percent in December, the statistics office said. Core inflation, which excludes mortgage interest and some food items, accelerated to 8.1 percent from 7.8 percent.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net

Last Updated: February 27, 2008 10:25 EST