Inflation breaches Reserve Bank target

Inflation in April increased from 6% to 6.1%, putting South African consumers under further pressure and raising expectations of an increase in interest rates in Thursday's announcement. (Delwyn Verasamy, M&G)

Inflation in April increased from 6% to 6.1%, putting South African consumers under further pressure and raising expectations of an increase in interest rates in Thursday's announcement. (Delwyn Verasamy, M&G)

South Africa’s inflation rate accelerated to 6.1% in April, exceeding the central bank’s maximum 6% target and bolstering the case for higher interest rates.

Inflation quickened from 6% in March, the Pretoria- based statistics office said. The median estimate of 30 economists surveyed by Bloomberg was for inflation to be unchanged. Prices rose 0.5% in the month.

The combination of a slowing economy, partly due to mining strikes, and faster inflation is creating a dilemma for the central bank. Twenty-six of the 30 economists surveyed by Bloomberg predict the bank will keep the benchmark repurchase rate at 5.5% on Thursday, with the others forecasting an increase of 25 or 50 basis points. The bank’s last rate increase was in January.

“The central bank was already expecting a breach of its upper tolerance band of 6% in the second quarter, so today’s print should not come as a surprise,” Abbas Ameli- Renani, an emerging-markets strategist at Royal Bank of Scotland Group Plc in London, said by email. “At the margin, it slightly increases chances of a 25 basis-point rate hike tomorrow (Thursday), although our base case is for no change.”

The rand rose 0.3% to 10.41 against the dollar as of 1.14pm in Johannesburg, taking its gain this year to 0.7%. Yields on the government bond due December 2026 fell 2 basis points to 8.18%.

The core inflation rate, which excludes food, non-alcoholic beverages and gasoline costs, was unchanged at 5.5%. – Bloomberg

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