South African Inflation Climbs to 7%, Highest Since 2009

  • Food price pressures from drought, weak rand are risk to CPI
  • Inflation is expected to breach target range until 2017: SARB

South African inflation accelerated to 7 percent 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 percent a month earlier, Pretoria-based Statistics South Africa said Wednesday on its website. The median of 21 economist estimates compiled by Bloomberg was 6.8 percent.

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

“This reiterates the stagflation dilemma that the SARB finds itself in,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., 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 percent after the inflation report, set for the highest closing level in a week. The rand was 0.2 percent weaker against the dollar at 15.2490 by 10:56 a.m. in Johannesburg.

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

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

“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 March 17.

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