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S.Africa's consumer inflation hits 1-year high ahead of rates decision

05/19/2021 | 05:37am EDT
A shopper wearing a protective mask shops for liquor ahead of a nationwide lockdown for 21 days to try to contain the coronavirus disease (COVID-19) outbreak in Johannesburg

JOHANNESBURG (Reuters) -South Africa's consumer price growth rose to its highest in more than a year and close to the mid-point of the central bank's target range, driven mainly by a sharp jump in transport costs following record increases in fuel on higher global oil prices.

Strict lockdowns during the worst period of the COVID-19 pandemic in 2020 limited economic activity and pushed consumer inflation to a 15-year low. Prices have gradually begun to rise with the easing of those restrictions and an increase in economic activity.

Headline consumer price inflation increased to 4.4% year-on-year in April, its highest since February last year, from 3.2% in March, data from Statistics South Africa showed on Wednesday.

The transport category showed the steepest increase, up 10.6%. Food prices also rose, by 6.3% year-on-year, while alcohol and tobacco prices increased 4.8%

On a month-on-month basis, the CPI was unchanged at 0.7%.

South Africa's central bank decides on lending rates on Thursday, and is widely expected to keep rates unchanged at 3.5% for a fifth meeting in a row, despite pressure to match rate hikes by other emerging markets such as Russia, Turkey and Brazil.

The bank has repeatedly stressed that keeping inflation low is the best way to support an economic recovery. The latest price growth figure is a touch below the 4.5% mid-point of its target range.

The figure also means South Africa is now running a negative real rate, a situation the central bank has typically not tolerated for extended periods. It also risks turning off investors seeking high returns.

The rand weakened in response to the inflation increase, sliding to a session-worst 14.0425 per dollar shortly after the release, from 14.03 just before.

"Fears of a third wave of COVID-19, combined with the slow vaccine rollout and harsh fiscal austerity, mean that rates will

probably stay at their current low for longer than most currently anticipate," said Jason Tuvey, an analyst at Capital Economics.

"Whereas investors anticipate tightening before the end of 2021, we don't expect policy to start being normalised until late next year."

South Africa launched phase two of its vaccine rollout on Monday with the aim of inoculating five million citizens aged over 60 by the end of June. Just under 480,000 health care workers had been vaccinated in the first phase.

The government aims to inoculate 46 million people to achieve herd immunity.

(Reporting by Mfuneko Toyana; Editing by Alex Richardson)

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
DOW JONES AFRICA TITANS 50 INDEX 0.23% 514.05 Delayed Quote.-2.46%
DOW JONES SOUTH AFRICA(ZAR) 1.30% 1869.14 Delayed Quote.6.36%
EURO / BRAZILIAN REAL (EUR/BRL) -0.11% 6.1154 Delayed Quote.-3.72%
EURO / SOUTH AFRICAN RAND (EUR/ZAR) -0.05% 17.46124 Delayed Quote.-2.59%
LONDON BRENT OIL 0.40% 75.08 Delayed Quote.44.49%
S&P AFRICA 40 INDEX 0.31% 166.27 Delayed Quote.-3.49%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -0.23% 73.4802 Delayed Quote.-0.24%
US DOLLAR / SOUTH AFRICAN RAND (USD/ZAR) -0.05% 14.7741 Delayed Quote.0.83%
US DOLLAR / TURKISH LIRA (USD/TRY) 0.00% 8.55598 Delayed Quote.15.17%
WTI 0.55% 72.388 Delayed Quote.49.57%
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