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Inflation accelerates to 5.9% after rand dips

Mike Cohen

The rand is down and inflation is up, but has not yet breached the Reserve Bank's upper target range.

Reserve Bank Governor Gill Marcus (left) said the committee won't necessarily adjust the interest rate every time it meets. (David Harrison, M&G)

South Africa's inflation rate accelerated to 5.9% in February after the rand weakened and fuel costs rose.

Inflation accelerated from 5.8% in January, the Pretoria-based statistics office said. The median estimate of 23 economists surveyed by Bloomberg was 5.9%.

Prices rose 1.1% in the month. The rand plunged 22% against the dollar last year, and a further 5.7% in January, which boosted the cost of imports and prompted the Reserve Bank to raise its benchmark repurchase rate by half a percentage point to 5.5% on January 29.

The rand gained 3.9% against the dollar since the start of February. "It’s not runaway inflation," Johann Els, an economist at Old Mutual Investment Group, South Africa's biggest private investor, said by phone from Cape Town. "The pass-through from a weaker rand to inflation is still more limited than what you would expect. I see inflation peaking at 6.5% mid-year."

The central bank in January forecast inflation will breach the top of its 3% to 6% target in the second quarter and peak at 6.6% in the final three months of the year.

The bank's Monetary Policy Committee will announce its next interest rate decision on March 27.

Interest Rate Reserve Bank Governor Gill Marcus said on March 13 the committee won't necessarily adjust the interest rate every time it meets and that if rates do rise, the increases may not be the same magnitude.

"I think they may skip raising rates this month," Els said. The yield on South Africa's rand bonds due 2026 dropped 3 basis points, or 0.03 percentage point, to 8.56% by 10.39am in Johannesburg.

The rand traded at 10.7028 per dollar, up from 10.7339 before the release of the data.

The core inflation rate, which excludes food, non-alcoholic beverages, gasoline and energy costs, was 5.3% in February, in line with the median estimate of 10 economists surveyed by Bloomberg. – Bloomberg

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