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    Home » Current affairs » SA inflation rises for first time in 2017

    SA inflation rises for first time in 2017

    By Agency Staff22 June 2017
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    [dropcap]I[/dropcap]nflation rate rose for the first time this year in May after food-price growth quickened from the slowest pace since December 2015.

    Consumer price inflation accelerated to 5.4% from 5.3% in April, matching the median estimate of 22 economists in a Bloomberg survey and staying within the central bank’s target range for a second month. Prices increased 0.3% in the month, Statistics South Africa said in a report released Wednesday.

    Food prices rose 7% from a year earlier, snapping four months of slowdowns and accelerating from April’s 6.6%, the statistics agency said. Corn prices have plunged 67% since reaching a record in 2016, as the country recovers from the worst drought on record and is set for its biggest harvest of the grain since 1981.

    “If we can keep inflation lower, anchoring inflation expectations, that should in turn generate a lower rate of interest to support the economy

    “The food-inflation hike is a bit of a surprise,” Kevin Lings, chief economist at Stanlib Asset Management in Johannesburg, said by phone. “Food inflation will come down back inside the target in the coming months, and I still believe that inflation overall will fall below 5% towards the end of the year.”

    The benchmark repurchase rate has remained unchanged since March 2016 as the central bank looked to support growth in an economy that entered the second recession in almost a decade in the first quarter. Inflation is likely to move to the middle of the central bank’s target range of 3-6% because of decelerating food-price growth, governor Lesetja Kganyago said in a speech in Johannesburg Monday.

    “If we can keep inflation lower, anchoring inflation expectations, that should in turn generate a lower rate of interest to support the economy,” Kganyago said.

    Downgrades

    S&P Global Ratings and Fitch Ratings downgraded the foreign-currency debt of South Africa to junk after President Jacob Zuma shuffled his cabinet and fired Pravin Gordhan finance minister. The rand regained some ground after losing as much as 11% following the move. Moody’s Investors Service cut the nation’s debt to the lowest investment grade this month.

    The rand strengthened 0.3% to R13.03/US$ by 3pm in Johannesburg on Wednesday. Yields on rand-denominated government bonds due in December 2026 were little changed at 8.55%.

    The central bank’s monetary policy committee, which announces its next interest-rate decision in July, has kept its key lending rate at 7% for seven meetings.

    We do not expect that this brief increase in headline inflation will be sustained

    “We do not expect that this brief increase in headline inflation will be sustained,” John Ashbourne, an economist at Capital Economics in London, said in an e-mailed note. “We retain out view that inflation will edge down over the coming months, and that the Reserve Bank will cut its key policy rate by 50 basis points by the end of the year.”

    The five-year breakeven rate, a measure of inflation expectations, fell to 5.23% on 5 June, the lowest since February 2015, and was at 5.38% on Wednesday. The central bank forecasts inflation will remain within the target band until at least the fourth quarter of 2019, it said in its 25 May decision.

    Core inflation, which excludes food, non-alcoholic beverages, energy and petrol, stayed at 4.8%, matching the median estimate of 14 economists surveyed by Bloomberg.  — Reported by Arabile Gumede, (c) 2017 Bloomberg LP



    Jacob Zuma Lesetja Kganyago Pravin Gordhan
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