South Africa consumer inflation breaches central bank’s target band in September

Consumer price inflation in South Africa breached the central bank’s target band during the month of September, accelerating above the upper end of the target band. However, it remained less than what markets had initially anticipated, reinforcing policymakers’ decision to keep the benchmark rate unchanged since March.

South Africa’s consumer price index (CPI) climbed to 6.1 percent from 5.9 percent a month earlier, data released by Statistics South Africa showed Wednesday in the capital, Pretoria. The median estimate of 21 economists surveyed by Bloomberg was for 6.2 percent. Also, prices rose 0.2 percent in the month.

Further, core inflation, which excludes food, non-alcoholic beverages, energy and gasoline, slowed to 5.6 percent, lower than the 5.7 percent median estimate of 13 economists. The central bank’s target band of inflation had raised borrowing costs by 2 percentage points to 7 percent since January 2014 to limit price growth to within its 3 percent to 6 percent target band.

"You would probably have to see the rand weaken toward 15 or above 15 rand versus the dollar for a reassessment to the upside in terms of the inflation outlook," Bloomberg reported, citing Carmen Nel, Economist, FirstRand Ltd’s investment banking unit.

However, the rand remained little changed at 13.8899 per dollar in Johannesburg after the release of the data on Wednesday, taking its appreciation this year to 11 percent. Yields on rand-denominated government bonds due December 2026 dropped five basis points to 8.77 percent.

Meanwhile, the Reserve Bank anticipates inflation to return to within the target by the second quarter of 2017. It briefly dipped within the band in July and August.