Pretoria - The Consumer Price Index (CPI) rose to 6.6% in May breaching the Reserve Bank’s inflation target range for a second month in a row, Statistics South Africa (Stats SA) announced on Wednesday.
The CPI came in at 6.1% in April breaching the central bank’s 3 to 6% inflation target range.
According to Stats SA, the food and non-alcoholic beverages index rose by 0.9%, while the annual rate increased to 8.8%.
Market consensus was for CPI to come in at 6.5%.
“We expect inflation to remain elevated during the remainder of this year and into the first half of 2015 due to a fragile rand and higher food prices,” said Nedbank economists.
At its May meeting the Reserve Bank’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.5%.
In its June Monetary Policy Review (MPR), the bank projected that inflation will remain above the target range for an extended time.
In the review, the bank noted: “Overall, inflation in South Africa is projected to be above target for an extended period of time, with risks tilted towards higher inflation. Over the longer term, this necessitates higher interest rates, and therefore a tightening cycle.”
On Wednesday Nedbank said the central bank faces the dilemma of striking a balance between weak growth and rising inflation.
“However, the Governor [Gill Marcus] has made it clear that the rate-hiking cycle has begun, but the extent and speed of tightening will be data dependent. The first quarter gross domestic product data and continuing turmoil in the mining sector decrease the likelihood of an early rate hike.
“Any further tightening this year would be on rand weakness. We think that this may happen later in the year but that the main interest rate up cycle will only resume in late 2015 after the US starts raising interest rates,” said Nedbank.
In the first quarter of 2013 Gross Domestic Product (GDP), data showed that seasonally adjusted GDP at market prices slumped at an annualised rate of 0.6% for the first quarter of 2014. – SAnews.gov.za
