/ 16 February 2011

January CPI quickens, rates could rise

South African consumer inflation accelerated in January, in line with consensus, official data showed on Wednesday, pushed up mainly by higher food and fuel costs.

A sustained upward trend in the data in the next few months could increase chances of interest rates rising before the end of the year to keep CPI inflation within the central bank’s 3% to 6% target band.

Consumer inflation quickened to 3,7% year-on-year in January from 3,5% in December, Statistics South Africa said.

Headline CPI was at 0,4% month-on-month — not far off predictions of a 0,45% rise — from 0,2% in December.

“I think the trend is what we’ve got to look at. I think there is enough cost pressures in the pipeline to indicate it is going higher,” said Brait economist Colen Garrow.

“The big issue is whether it’s going to challenge the upper end of the target-range by the end of the year. My feeling is that it may, and it is also likely to encourage the Reserve Bank to put rates up before the end of the year.”

The rand strengthened after the data to 7,32 against the dollar from 7,34 before the data was released at 8am GMT. The yield on the benchmark 2015 government bond fell to 7,80% from 7,845% before the CPI release.

The central bank kept its key repo rate unchanged at 5,5% in January — after slashing it by 650 basis points since late 2008 — citing an improving economic outlook and rising inflation risks.

Reserve Bank Governor Gill Marcus said unless there were significant unexpected changes in the global or domestic outlook, the monetary policy stance was expected to remain relatively stable for some time. – Reuters