Bloomberg News

South African Inflation Rate Climbs to 12-Month High of 4.6%

June 22, 2011

(Updates with analyst comment starting in third paragraph.)

June 22 (Bloomberg) -- South African inflation accelerated to 4.6 percent last month, the fastest pace in 12 months, as increased fuel costs added to pressure on the central bank to raise interest rates from a 30-year low.

The inflation rate rose from 4.2 percent in April, the Pretoria-based statistics office said on its website today. The median estimate of 24 economists surveyed by Bloomberg was 4.4 percent. Prices climbed 0.5 percent in the month.

“Much now depends on whether global food and fuel prices, which appear to have halted their upward trend, will ease off in the coming months and whether the second-round effects of inflation remain dormant,” Nedbank Group Ltd., South Africa’s fourth-largest bank, said in e-mailed comments.

The central bank warned price pressures were intensifying when it left its benchmark interest rate unchanged at 5.5 percent on May 12. The bank expects inflation to average 5.1 percent this year and 6 percent in 2012. Its monetary policy committee is due to announce its next interest-rate decision on July 21.

“Global commodity-price increases have begun to pose risks to the domestic inflation outlook,” Gill Marcus, the bank’s governor, said in Pretoria on June 14. “This is expected to create a challenge for monetary policy going forward.”

Wait-and-See

The government increased gasoline prices by 2.9 percent on May 4 after oil costs surged on unrest in the Middle East. The price of crude gained 29 percent between the start of 2010 and the end of last month.

The central bank “is likely to continue with its wait-and- see policy until there is greater evidence of more generalized inflation,” before raising rates, Nedbank said. “An early interest rate increase would risk curbing the economic recovery.”

South African bonds fell after the release of the inflation data. The yield on the 6.75 percent notes due 2021 rose three basis points, or 0.03 percentage point, to 8.38 percent at 10:35 a.m. in Johannesburg. The rand traded at 6.7268 per dollar, little changed from before the release of the inflation data.

--Editors: Philip Sanders, Heather Langan, Karl Maier

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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