South Africa’s inflation rate climbed in line with analysts’ expectations on higher water and electricity prices, providing impetus for the central bank to keep interest rates high for longer.
(Bloomberg) — South Africa’s inflation rate climbed in line with analysts’ expectations on higher water and electricity prices, providing impetus for the central bank to keep interest rates high for longer.
The headline consumer-price index for August rose 4.8% from a year earlier, compared to 4.7% the prior month, Pretoria-based Statistics South Africa said Wednesday in a statement on its website. That matched the median estimate of 23 economists in a Bloomberg survey.
Electricity tariffs increased by 15.3% in 2023, much higher than the 7.9% rise recorded last year and households paid 9.6% more for water after bearing the brunt of an 8.1% rise in 2022, the statistics office said. The agency surveys municipal rates in July and August.
What Bloomberg Economics Says…
“The slight pick up in inflation to 4.8% year on year in August, from 4.7% in July was due to non-food prices. Housing and utilities price inflation strengthened reflecting an increase in administrative prices. It is notable that the slowdown in food and non-alcoholic drinks price inflation to 8% year-on-year, from 9.9%, is due to a base effect. Food and non-alcoholic drink prices actually strengthened on a month-on-month basis.”
— Yvonne Mhango, Africa economist
Forward-rate agreements starting in a month — used to speculate on borrowing costs — show traders are pricing in an 12% chance of a quarter-point increase on the eve of the South African Reserve Bank’s rate decision. That compares with a 10% chance of a cut of 25 basis points at the start of the month.
Markets were little changed on the data. Yields on local-currency bonds maturing in 2035 were up one basis point from closing levels to 12.11%. The rand was flat at 18.945 against the dollar as of 10:46 a.m. In Johannesburg
The central bank targets price growth at 3% to 6% and prefers to anchor inflation expectations at the midpoint of the range. Most economists polled in a Bloomberg rate-decision survey ahead of the data release predict the monetary policy committee will hold borrowing costs with several expecting it to be cautious of declaring a victory over inflation.
Reserve Bank Governor Lesetja Kganyago has reiterated that the bank’s fight against inflation is not yet done, and that the rand’s depreciation against the dollar, higher global energy prices, rate increases in advanced economies and ongoing power cuts in South Africa remain risks to the outlook.
Read More: High Core Goods Inflation Irks South African Central Bank Chief
The MPC halted its longest phase of monetary tightening since 2006 at its last meeting and inaction on the policy rate on Thursday would be the second pause in the current cycle.
It has increased the repurchase rate by 475 basis points to 8.25% since November 2021 to rein in price growth.
Food and non-alcoholic beverage inflation slowed to 8%, compared with 9.9% in July. Core inflation, which excludes the cost of food, non-alcoholic drinks, fuel and energy, quickened to 4.8% from 4.7%.
–With assistance from Simbarashe Gumbo and Colleen Goko.
(Updates with more details in paragraph three and market reaction in paragraph five)
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