African Markets

SA inflation grasps 5.5%, uppermost in virtually five years

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South Africa’s inflation rate surged to its highest level in nearly five years in November, highlighting the difficult choice the central bank confronts in balancing price rise with support for an economy dealing with the aftermath of a fourth wave of coronavirus illnesses.

Consumer prices increased 5.5 percent year on year, compared to 5 percent in October, according to a statement published on Statistics South Africa’s website on Wednesday.

This is the highest level since March 2017 and corresponds to the median estimate of 14 economists polled by Bloomberg. Headline inflation, fueled by record-high gasoline prices and rising food prices, has now exceeded 4.5 percent for seven consecutive months, the midpoint of the central bank’s goal range at which it tries to anchor expectations.

The South African Reserve Bank hiked its benchmark interest rate last month and signaled more increases. Policymakers may be pushed to reconsider that strategy, as foreign travel prohibitions enforced in the aftermath of the finding of the omicron form in the country risk slowing the country’s economic recovery.

The inferred policy rate path of the central bank’s quarterly projection model, which the monetary policy committee follows, suggested one 25-basis-point rate hike in each of the next 12 quarters last month.

Governor Lesetja Kganyago has always emphasized that the model serves as a broad policy guideline and that future interest-rate choices will be data driven.

Economists estimate South Africa will miss the central bank’s 2021 economic growth forecast of 5.2 percent after output fell more than expected in the third quarter and more than 90 countries cut aviation ties with the country ahead of the summer holiday season due to Omicron fears.

Forward-rate agreements, which begin in two months and are used to speculate on borrowing costs, indicate that traders have fully priced in a quarter-point increase in the buyback rate in January.

Story by : Norvisi Mawunyegah