South Africa on increase Inflation slightly in October

Inflation rose slightly as expected to 4.7% year on year in October from 4.6% year on year in September, Statistics SA data showed on Wednesday.

Rising food inflation drove prices higher. A drought has caused production shortages and necessitated imports, which are pricier due to a weak rand.

October was the 14th consecutive month that inflation remained within the Reserve Bank’s 3%-6% target band.

Although inflation is expected to breach the target early next year, the modest increases in inflation and subdued core inflation could give comfort to the Bank and allow it to leave interest rates unchanged. Its announcement is due on Thursday. The Bank has to raise rates when inflation constantly breaches the upper end of the target range.

Inflation was likely to rise further in coming months on higher food and electricity prices and continued rand weakness, which would push up import prices, Capital Economics Africa economist John Ashbourne said. His company is among the few that expect the Bank to increase rates by 25 basis points on Thursday.

Higher inflation in SA over the next few months would be due to base effects from low oil prices in the first quarter of this year, state administered price increases and other factors outside the influence of the Bank, Investec chief economist Annabel Bishop said. She is among those expecting rates to remain on hold on Thursday.

Core inflation, which strips out food, petrol and electricity, slowed slightly to 5.2% year on year in October from 5.3% in September, suggesting that the effects of a weak rand on local prices was benign due to weak demand.

Inflation increased by 0.3% month-on-month in October 2015, with food and nonalcoholic beverages contributing 0.1 of a percentage point.

Transport contributed 0.1 of a percentage point after a 4c/l increase in the petrol price in October.

In October the consumer price index (CPI) for goods increased by 3.7% year on year compared with 3.6% in September, while the CPI for services increased by 5.6% year-on-year, unchanged from September.