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South Africa inflation quickens to 6.3 pct in June

Xinhua, July 21, 2016 Adjust font size:

South Africa's headline consumer inflation quickened to 6.3 percent year-on-year in June from 6.1 percent in May, data from Statistic South Africa (Stats SA) showed on Wednesday.

According to Stats SA, prices were up 0.6 percent on a month-on-month basis, after a 0.2 percent increase previously.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, rose slightly to 5.6 percent year-on-year in June from 5.5 percent, and to 0.4 percent month-on-month from 0.2 percent.

South Africa is battling to maintain its inflation with the targeted band of 3 percent to 6 percent. The stubborn inflation has been off the target for sometime, as the country faces a economic slow down.

The accelerated inflation broke a three-month streak of slowing inflation.

The SA Reserve Bank's monetary policy committee (MPC) is expected to announce its interest rate decision on Thursday, and economic experts hope the bank will hold the rates steady.

Investec chief economist Annabel Bishop told Xinhua that she anticipated inflation to slow 5.9 percent basing on falling demand.

Stats SA said the consumer price index (CPI) increased 0.6 percent in June compared with a 0.2 percent month-on-month increase in May.

The food price index rose 10.8 percent in June from a year earlier. Food has consistently been one of the main drivers of consumer inflation, with a long drought as one of the main reasons behind rising prices.

Bishop noted that many farmers are "still reeling under the drought and insufficient financial aid from government. As for now food prices remain under pressure, afflicting the poor the most," Bishop said.

She expects the CPI inflation to remain in June, well above the headline 6.3 percent set by the SA Reserve Rank.

The food price index rose 10.8 percent in June from a year earlier.

"Inflation is still uncomfortable for policymakers, but has proved slightly more benign than expected," said Jeffrey Schultz, a senior economist at BNP Paribas Securities in Johannesburg.

He added: "South Africa could be nearing the end of its tightening cycle."

"Better rains were expected this summer, which would eventually bring relief on food prices. Transport was a big factor in the month-on-month increase," the First National Bank said in a statement.

Transport prices rose 1.6 percent in June from May, mainly because of a petrol price increase of 52c a litre, and a 5.1 percent increase in airfares, Stats SA said.

Bishop predicts inflation to slow down in August, precipitated by a 86c a litre cut, and the low oil prices and the strength of the rand against the dollar.

Economic expects that many farmers are still reeling under the drought. An economist at Agriz, Wandile Sihlobo, said: "Looking ahead we expect meat prices to increase in the coming months due to current decrease in cattle slaughtering."

"We expect some relief in the grain prices in 2017, assuming that the rainfall will normalize during the planting season or the forecast La Nina will materialize later this year," said Sihlobo. Endit