JOHANNESBURG: South Africa’s inflation rose 6.2 percent in January compared with the same period a year ago as food prices increased and the effects of a volatile market lingered, Statistics South Africa (StatisSA) said on Wednesday. The inflation also marked a rise compared with 5.2 percent registered in December.
The stubborn inflation has breached the South African Reserve Bank’s (SARB) target of three to six percent, and has become a concern for the bank. With the ever rising inflation, the SARB had no choice but hike the repo rate by 50 basis points in January.
“It was expected that it (inflation) would breach the target in the first quarter of the year,” Annabel Bishop, Investec chief economist told Xinhua. “Inflation expectations are driven by exogenous factors over the period, and will not be much impacted by raising interest rates,”Bishop added.
However, some economists blamed the political events in the country as spooking the rand and an emerging market sell-off internationally. According to StatisSA, core inflation, which excludes food, non-alcoholic beverages, fuel and electricity prices, rose to 5.6 percent year on year from 5.2 percent.
Data showed that the food and non-alcoholic beverages index increased from 5.9 percent year on year to 6.9 percent in January. Food prices are rising due to production shortages caused by the drought.
Inflation increased by 0.8 percent month on month in January. In January, goods inflation rose by 6.5 percent year on year from 4.6 percent in December, while services inflation increased by six percent year on year from 5.7 percent in December. The rise in services inflation reflected not only rand weakness, but also the growing inability of businesses to absorb these cost pressures, economist Kirk Swart of Overberg Asset Management, told Xinhua.
“The main drivers for inflation are food and transport costs; these are pushing the inflation higher and higher. With impending drought, we expect the trend to continue to fall unabated. This (inflation) will be exacerbated by the weakness of the rand.” he said.
The rand lost some its value against major currencies on Wednesday following worse-than-expected annual consumer inflation data, before regaining the day’s losses in the trading session. The rand was trading at R15.75 from Tuesday’s close at R15.87 on Wednesday.
The rand has lost 1.82 percent of its value against the dollar since the start of the year. The currency lost almost 30 percent of its value against the greenback after taking a beating in December following the surprise axing of Finance Minister Nhlanhla Nene. The appointment of Pravin Gordhan as replacement for backbencher David van Rooyen four days later has since brought some calm to the markets.
