South Africa’s inflation heightens above expectations, rate hike still unlikely

Consumer prices in South Africa rose during the month of June rose, above market expectations and away from the central bank’s target range. Despite a strong inflation, market participants feel the rise remains short of justifiable range for an interest rate hike by the central bank.

Inflation quickened to 6.3 percent year-on-year in June from 6.1 percent in May, data released by Statistics South Africa showed Wednesday. Economists polled by Reuters had expected a 6.2 percent increase. Moreover, prices rose 0.6 percent m/m in June, after a 0.2 percent increase in May.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, rose slightly 5.6 percent year-on-year in June, from 5.5 percent, and to 0.4 percent month-on-month from 0.2 percent. The rand edged up slightly against the dollar after Wednesday's data, suggesting some traders believed there was a slightly higher chance of a rate hike this week, Reuters reported.

Further, analysts who expect the central bank to keep rates on hold at 7 percent in the monetary policy meeting scheduled to be held on July 20, said that the latest release of inflation figures did not temper the views.

"I don't think it's going to have any impact at all. We thought by now inflation would probably be near 7 percent," Reuters Africa reported, citing, Mandla Maleka, Chief Economist, Eskom.

Meanwhile, all 24 economists surveyed by Bloomberg concluded that the Monetary Policy Committee will keep borrowing costs unchanged this week.