Bloomberg News

South African Inflation Exceeds Target for 3rd Month at 6.3%

February 22, 2012

(Updates with economist comment in fourth paragraph.)

Feb. 22 (Bloomberg) -- South Africa’s inflation rate rose to 6.3 percent in January, remaining outside the central bank’s target range for a third month and limiting the space Governor Gill Marcus has to stimulate the economy.

Inflation accelerated from 6.1 percent in December, Pretoria-based Statistics South Africa said on its website today. The median estimate of 10 economists was 6.2 percent. Prices rose 0.6 percent from a month earlier.

The Monetary Policy Committee, led by Marcus, has kept the benchmark repurchase rate at 5.5 percent since November 2010. Marcus said on Jan. 19 the inflation rate will probably remain above the 3 percent to 6 percent target range this year.

“The Reserve Bank will keep the repo rate steady at 5.5% until the first half of 2013,” Adenaan Hardien, an economist at Cape Town-based Cadiz Asset Management, said in an e-mailed note. “We expect a gradual rate hiking cycle thereafter.”

The economy expanded an annualized 1.4 percent in the third quarter, close to a two-year low, as mining and manufacturing contracted. Finance Minister Pravin Gordhan said on Jan. 26 the economy will probably expand less than 3 percent this year, down from an earlier projection of 3.4 percent. Gordhan is due to give revised growth forecasts in his budget speech at 2 p.m. today.

Domestic Spending

Rising food, fuel and administrative prices, as well as a weaker rand later in the year, will keep inflation “elevated,” Nedbank Group Ltd. said in e-mailed note to clients today. “These stresses will be partly offset by softer domestic spending and excess production capacity.”

While inflation is outside the central bank’s target rate, it’s slower than previously expected, Alastair Sellick, the head of fixed interest at PSG Asset Management (Pty) Ltd., said in an interview from Cape Town. “If anything, it gives it more ammunition to cut rates in the future as some people were predicting an inflation rate of 6.7 percent earlier in the year.”

The rand reversed gains against the dollar after the data was announced. The currency weakened 0.2 percent to 7.7369 at 11:10 a.m. in Johannesburg trading. The yield on the R157 government bond increased 2 basis points to 6.26 percent.

--Editors: Nasreen Seria, Ben Holland, Vernon Wessels, Karl Maier

To contact the reporters on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

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


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