Inflation points to rate hike

IOL pic aug28 rsa_flag_shadow REUTERS File picture: Ronen Zvulun

Johannesburg - South Africa's headline inflation quickened more than expected in February to its highest level in nearly seven years, adding pressure on the central bank to raise interest rates further despite weak economic growth.

Inflation hit 7 percent year-on-year in February from 6.2 percent in January, data from Statistics South Africa showed on Wednesday, the highest rate since May 2009.

“Today's surprisingly high inflation figure will probably lead the South African Reserve Bank to accelerate its programme of rate hikes,” Capital Economics' Africa analyst John Ashbourne said.

“This will be very painful for an economy that is struggling to avoid recession.”

Read also: Food prices escalate at an alarming rate

Economists polled by Reuters had expected CPI to come in at 6.7 percent in February.

On a month-on-month basis, prices were up 1.4 percent after an increase of 0.8 percent in the previous month.

The rand recouped losses against the dollar after the data was released, trading at 15.2475 against the greenback from a session low of 15.2800.

The Reserve Bank raised its benchmark repo rate by 25 basis points to 7.0 percent last week, after a 50 basis points hike in January, saying CPI would average 6.6 percent this year, above a 3-6 percent target band.

Read also: MPC surprises with increase in repo rate

The rate hike came in spite of lower growth forecasts for Africa's most industrialised economy.

The central bank expects expansion of just 0.8 percent in 2016, slightly lower than the Treasury's forecast of 0.9 percent.

 

REUTERS

Follow us on Twitter

Connect with us on LinkedIn

Hungry for more business news? Sign up for our daily newsletter!

Like us on Facebook


sign up