Traders raise South Africa rate-hike bets
As inflation quickens to 7.1% in March
The South African Reserve Bank prefers to anchor price-growth expectations close to the 4.5% midpoint of its target range.
Traders raised bets that South Africa’s central bank will continue its interest-rate hiking cycle next month after inflation unexpectedly quickened in March.
Forward-rate agreements starting in two months, used to speculate on borrowing costs, show traders are fully pricing in a quarter-point increase in the repurchase rate, with a chance of a bigger 50-basis point move on May 25, when the monetary policy committee gives its next decision. That’s after statistics office data showed the annual inflation rate quickened to 7.1% from 7% a month earlier.
This was largely the result of pricier food. Prices of food and non-alcoholic beverages rose by 14.0% over the past year, the biggest increase in 14 years. This contributed 2.4 percentage points to the total CPI annual rate of 7.1%, Statistics SA reported.
Prices of milk, eggs and cheese rose by 13.6% over the past year, from an annual rate of below 4% a year ago.
But inflation has started cooling in the categories for bread and cereals (20.3%, down from 20.5% in February), meat (10.6% from 11.4%) as well as oils and fats (16.7% to 16%).
Prices for personal care items increased by 11.1%, the highest rate since 2009.
While fuel prices rose by 4.5% between February and March due to price hikes, the transport index cooled to 8.9% in the 12 months to March, from 9.9% in February. This was the eighth consecutive month of slowing fuel inflation, Statistics SA reported.
The latest inflation number included school and university fees, which are surveyed once a year in March.
Primary and pre-primary school fees were up 6.3%, while fees for secondary school rose 5.8% and by 5.3% at tertiary institutions. Textbook prices jumped 11.3%, the largest annual increase since 2009.
Target
The South African Reserve Bank prefers to anchor price-growth expectations close to the 4.5% midpoint of its target range. A survey published before its March rate decision showed analysts, unions and households expect inflation to average 6.3% this year. That suggests policymakers nearing the end of the interest-rate hiking cycle may still be reluctant to pivot away from tightening at next month’s rate-setting meeting.
The central bank has delivered 425 basis points of tightening since November 2021, with March’s bigger-than-expected 50 basis point move surprising financial markets. The MPC believes it has taken the right decisions to guide price growth back to the midpoint of its target range "but this cannot preclude further steps if inflation and inflation expectations continue to surprise higher," Governor Lesetja Kganyago said in a speech this month.
Price-growth in South Africa is being stoked by currency weakness, severe power rationing and logistics-network constraints that are adding to costs of doing business and sapping the country’s economic growth prospects.-Fin24
Forward-rate agreements starting in two months, used to speculate on borrowing costs, show traders are fully pricing in a quarter-point increase in the repurchase rate, with a chance of a bigger 50-basis point move on May 25, when the monetary policy committee gives its next decision. That’s after statistics office data showed the annual inflation rate quickened to 7.1% from 7% a month earlier.
This was largely the result of pricier food. Prices of food and non-alcoholic beverages rose by 14.0% over the past year, the biggest increase in 14 years. This contributed 2.4 percentage points to the total CPI annual rate of 7.1%, Statistics SA reported.
Prices of milk, eggs and cheese rose by 13.6% over the past year, from an annual rate of below 4% a year ago.
But inflation has started cooling in the categories for bread and cereals (20.3%, down from 20.5% in February), meat (10.6% from 11.4%) as well as oils and fats (16.7% to 16%).
Prices for personal care items increased by 11.1%, the highest rate since 2009.
While fuel prices rose by 4.5% between February and March due to price hikes, the transport index cooled to 8.9% in the 12 months to March, from 9.9% in February. This was the eighth consecutive month of slowing fuel inflation, Statistics SA reported.
The latest inflation number included school and university fees, which are surveyed once a year in March.
Primary and pre-primary school fees were up 6.3%, while fees for secondary school rose 5.8% and by 5.3% at tertiary institutions. Textbook prices jumped 11.3%, the largest annual increase since 2009.
Target
The South African Reserve Bank prefers to anchor price-growth expectations close to the 4.5% midpoint of its target range. A survey published before its March rate decision showed analysts, unions and households expect inflation to average 6.3% this year. That suggests policymakers nearing the end of the interest-rate hiking cycle may still be reluctant to pivot away from tightening at next month’s rate-setting meeting.
The central bank has delivered 425 basis points of tightening since November 2021, with March’s bigger-than-expected 50 basis point move surprising financial markets. The MPC believes it has taken the right decisions to guide price growth back to the midpoint of its target range "but this cannot preclude further steps if inflation and inflation expectations continue to surprise higher," Governor Lesetja Kganyago said in a speech this month.
Price-growth in South Africa is being stoked by currency weakness, severe power rationing and logistics-network constraints that are adding to costs of doing business and sapping the country’s economic growth prospects.-Fin24
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