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South Africa inflation is expanding range

         Date: 2012-03-16

           Tag: South Africa inflation, South Africa

Summary: Rising oil prices pose an “upside” risk to inflation, Marcus said. The Monetary Policy Committee had forecast on Jan. 19 inflation would remain outside the target band for the rest of this year.

Marcus’s comments are the first to highlight price pressures in Africa’s biggest economy may be spreading since keeping the benchmark interest rate on hold for 16 months.

Inflation (SACPIYOY) accelerated to a two-year high of 6.3 percent in January, staying outside the target band for a third consecutive month.

South African Reserve Bank Governor Gill Marcus said inflation may be becoming “more generalized” with demand in the economy picking up, indicating policy makers may be preparing to raise interest rates.

The bank will monitor this “very carefully,” Marcus said in a speech in Johannesburg yesterday, according to a copy posted on the bank’s website.

At the same time, Marcus lowered the central bank’s forecast for inflation, expecting that it will return to the 3 percent to 6 percent target band by the end of this year.

“This is hawkish,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e- mailed response to questions.

This is “probably as sure a sign as we’re going to get, provided there is no big euro-area crisis, that the Reserve Bank will tighten interest rates this year.”

The central bank has kept its key rate at 5.5 percent since November 2010, the lowest in more than 30 years, to blunt the effect of a European recession on the domestic economy. The Monetary Policy Committee will make its next rate decision on March 29.

Investors are increasing bets the Reserve Bank will raise rates by the end of the year. The yield on the forward-rate agreement due in nine months has gained 16 basis points, or 0.16 percentage point, to 5.945 percent in the past month.

Rising oil prices pose an “upside” risk to inflation, Marcus said. The Monetary Policy Committee had forecast on Jan. 19 inflation would remain outside the target band for the rest of this year.

“We recognize that keeping inflation under control must be done with due regard to the possible impact on employment and growth,” Marcus said. “At the same time, maintaining price stability remains central to our mandate.”


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