South Africa Inflation at 10-Month High as Food Costs Surge

JOHANNESBURG (Capital Markets in Africa) – South African consumer-price growth quickened in December as food costs surged, complicating the central bank’s task less than a week before it will decide on borrowing costs.

Inflation accelerated to a 10-month high of 6.8 percent from 6.6 percent in November, Statistics South Africa said in a report released Wednesday in the capital, Pretoria. The median estimate of 24 economists surveyed by Bloomberg was for inflation of 6.5 percent. Prices rose 0.4 percent in the month.

The benchmark repurchase rate has remained unchanged since March as the economy probably expanded at the slowest pace last year since a 2009 recession, according to government estimates. While breakeven rates, a measure of inflation expectations, are at the lowest in almost two years, the rand, higher food costs, and oil prices remain a risk, Governor Lesetja Kganyagosaid in an interview Tuesday.

It “looks like food inflation isn’t really responding as quickly as we had hoped,” Abri du Plessis, an economist at Gryphon Asset Management Ltd. in Cape Town, said by phone. “The market was hoping that we could get to a point where we have seen the top of the cycle and that there’s maybe a chance for interest rates to maybe come down to assist on the growth side.”

The prices of food and non-alcoholic beverages, which were pushed up by the worst drought in more than a century, rose 11.7 percent from a year earlier and 0.8 percent from the month before, according to the statistics office.

Rate Decision
The central bank, which will announce its next rate decision on Jan. 24, forecasts inflation will return to its 3 percent to 6 percent target band sustainably in the second quarter of this year. While forward-rate agreements starting in 12 months, used to speculate on borrowing costs, rose by five basis points after the release of the inflation data, they aren’t pricing in any changes to the repurchase rate, which is currently 7 percent.

Inflation could slow to within the Reserve Bank’s target, ending its raising cycle, if the rand doesn’t weaken again too quickly, according to Du Plessis.

The rand depreciated 0.9 percent to 13.5854 per dollar by 11:14 a.m. in Johannesburg on Wednesday. Yields on rand-denominated government bonds due December 2026 rose 4 basis points to 8.69 percent.

Core inflation, which excludes food, non-alcoholic beverages, energy, and gasoline, quickened to a seven-year high of 5.9 percent from 5.7 percent in November. The median of 11 economist estimates was for no change.