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South Africa’s inflation jumps, backs rate hike

SOUTH Africa’s targeted inflation rate climbed to a four-year high of 6.7% year-on-year in September, official data showed on Wednesday, keeping open the possibility of another rate hike. Statistics South Africa said CPIX inflation accelera

ted from 6.3% in August.

It outpaced forecasts of a 6.4% rise and has now remained above the central bank’s 3 to 6% band for six months in a row.

The jump knocked government bonds, sending the yield on the benchmark 2015 issue to a one-month high and the rand to a fresh 16-month peak.

Analysts said the data showed inflation pressures were entrenched. “It’s a very bad number.

You can almost pen in another interest rate hike for December,” said Nico Kelder, economist at Efficient Research.

“It just shows inflation is definitely not under control yet and the Reserve Bank will have to focus on that … I think you can start talking about interest rate hikes in February as well,” he said.

South Africa’s central bank raised its key repo rate by 50 basis points earlier this month to 10.5%, bringing total tightening since June last year to 350 basis points.

Reserve Bank Governor Tito Mboweni has remained hawkish and last week defended the October rate hike, saying the bank would do all it could to fight inflationary pressures.

Stats SA said the headline CPI inflation also came in above expectations at 7,2% year-on-year in September, above forecasts of 6,8% Food inflation was, again, the main culprit, quickening to 11,9% from 11,1% in August.

“It reinforces that we have an inflation problem, and that problem is not going away,” said Jeff Gable, ABSA Capital’s Head of Research.

“We still think that 7% is likely before the end of the year and that’s going to continue to leave the focus on the Reserve Bank (and) whether or not it’s time to call an end to interest rates hikes or not.”

At 1121 GMT, the yield on the 2015 bond (ZAR157) was up eight basis points for the day at 8,365%, while the 2010 had gained 10 basis points to 9,01%. The Johannesburg bourse’s blue-chip Top-40 index (JTOPI) extended its decline and was down 0,81%.

Some economists said the latest move suggested the central bank’s projections that CPIX — which strips out mortgage costs — will turn at 6,8% in the first quarter of 2008 were too optimistic.

“The peak now looks as though it will be a lot higher, we would not rule out 7,5% in first quarter 2008,” said Razia Khan, Regional Head of Research for Africa at Standard Chartered in London.

Last week, Mboweni said the bank saw inflation peaking in February before easing back into the 3 to 6% target band by the second half of next year.

With inflation showing more of an upward trend, economists said the cycle of monetary policy tightening may have to go into next year.

The central bank meets on December 5-6 to decide on the next interest rate move. — Reuters.

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