(Updates with comment from economist in third paragraph, rand in seventh.)
Nov. 23 (Bloomberg) -- South Africa’s inflation rate rose to a 21-month high of 6 percent in October as food and fuel prices increased, reducing chances the central bank will lower interest rates to support growth in Africa’s largest economy.
Inflation accelerated from 5.7 percent in September, the Pretoria-based statistics office said on its website today. The median estimate of 19 economists was 5.9 percent. Prices rose 0.5 percent in the month.
The fact that inflation has reached the upper limit of the central bank’s 3 percent to 6 percent target range “has sufficient shock value to finally erase any remnants of rate-cut expectations,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in e-mailed comments. “We would have to see a considerable deterioration in global and South African growth to justify new easing.”
The Reserve Bank has kept its benchmark interest rate unchanged at a 30-year low of 5.5 percent this year as concerns of slower economic growth following the debt crisis in Europe offset those of rising prices. The bank expects inflation to peak at an average 6.3 percent in the first quarter of 2012 and remain above its target band until the final quarter of next year.
The price of oil surged 18 percent in New York last month, while white corn, a staple food in South Africa, gained 6.8 percent on the South African Futures Exchange. The rand has plunged 21 percent against the dollar this year, the worst performer of 16 major currencies tracked by Bloomberg, adding to import costs.
“The rand plays a very important part in the inflation process and we have had quite a material move in the currency over the last while,” Arthur Kamp, an economist at Sanlam Investment Management, said by phone from Cape Town. “If the currency keeps weakening, the bank is going to have to raise its medium-term inflation forecasts. I don’t think the Reserve Bank is going to be considering cutting rates.”
The rand traded at 8.44 per dollar at 10:18 a.m. in Johannesburg today, little changed from before the release of the inflation data and down from 8.3767 yesterday.
“The relatively weak economy has ensured that demand pressures on inflation are restrained at this stage,” Reserve Bank Governor Gill Marcus said at the last Monetary Policy Committee meeting on Nov. 10. “Nevertheless, exogenous supply side factors have resulted in a deterioration of the inflation outlook.”
--Editors: Gordon Bell, Ben Holland
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