South Africa Inflation at Five-Year High of 6.5% Tops Central Bank Target - BLOOMBERG
JUNE 23, 2022
BY Bloomberg News
(Bloomberg) -- South Africa’s inflation rate rose more than expected and breached the central bank’s target range for the first time in more than five years as pressure mounts on policy makers to keep pace with aggressive developed market interest-rate increases.
Annual inflation accelerated to 6.5% in May, from 5.9% a month prior, Statistics South Africa said in a statement on its website on Wednesday. That’s the highest level since January 2017. The median of 11 economists’ estimates in a Bloomberg survey was 6.1%.
The rand was little changed at 16.0243 per dollar by 10:16 a.m. in Johannesburg.
The South African Reserve Bank prefers to anchor inflation expectations close to the midpoint of its 3% to 6% target range. The rate of price growth, stoked by rising food and fuel costs, has topped that 4.5% level for more than a year even as the government temporarily reduced a fuel levy to contain increases in the retail price of gasoline and wholesale cost of diesel. The measure is likely to have delayed the peak in inflation.
The breach of the ceiling coupled with rand weakness -- after the Federal Reserve’s most aggressive rate hike in almost three decades -- adds to pressure on the central bank to raise borrowing costs more quickly and keep local assets attractive to offshore investors. Gross domestic product growth that overshot forecasts in the first quarter would support such a move.
What Bloomberg Economics Says...
“The breach together with the outsized Fed hike earlier this month and significant rand weakening since reinforces our view that the outcome for the upcoming July meeting is a choice between a 50bps and 75bps increase. The risks toward the latter have increased in our view.”
-- Boingotlo Gasealahwe, Africa Economist
The central bank raised its benchmark interest rate by the biggest margin in more than six years in May and signaled even higher borrowing costs are ahead. The implied policy rate path of the central bank’s quarterly projection model, which the monetary policy committee uses as a guide, indicated its key rate will be at 5.3% by year-end, compared with a previous forecast of 5.06%.
Governor Lesetja Kganyago has since said the central bank is concerned about rising imported inflation due to mounting global price pressures and will “remain alert” to global and local inflation dynamics.
(Updates with details from third paragraph)