Consumer price inflation (CPI) has breached the upper limit of the South African Reserve Bank’s (Sarb’s) target range by accelerating to 6.2% year-on-year in January 2016. The consensus forecast for headline CPI, which includes the volatile food and energy components, was for an increase to 6.0% in January. The Sarb’s target rage is between 3% and 6%.<\/p>\n
Statistics SA announced on Wednesday that the headline CPI (for all urban areas) annual inflation rate in January 2016 was 6.2%.
\nThis rate was 1.0 percentage point higher than the corresponding annual rate of 5.2% in December 2015.<\/p>\n
On average, prices went up by 0.8% between December 2015 and January 2016.<\/p>\n
The sharp inflationary increase is attributed to the base effect of comparatively low energy prices a year ago and the impact of the drought on food prices, said analysts at Overberg Asset Management in its weekly overview of the South African economic environment.<\/p>\n
“Food price inflation has been compounded by the weaker rand and the need to import food as a result of the drought.”<\/p>\n
Peter Attard Montalto, emerging markets economist at Nomura, said the most important factor was core inflation – “after so many quarters of negative surprises, inflation surprised to the upside even in a relatively low survey month and shows the risk premia coming into prices from the political events of December and faster pass through now occurring.”<\/p>\n
He said the Sarb will be very worried about this move, especially as expectations also rise and “it now means a pause in the interest rate hike cycle may not happen in March as we previously expected”.<\/p>\n
At its last policy meeting, the Sarb lifted its CPI forecasts for 2016 and 2017 from a previous average of 6% and 5.8% to 6.8% and 7% respectively.<\/p>\n
The rand, which traded at around R15.81 before the release of the numbers, weakened further to trade at R15.83 shortly after the CPI numbers were announced.<\/p>\n
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