Inflation continues to surge as interest rate hikes fail to make an impact

Robert Laing

Robert Laing

Headline inflation accelerated to 6,7percent in September, making another 0,5percent interest rate increase look inevitable on December 6 when the Reserve Bank's Monetary Policy Committee announces its next decision.

Food prices in metropolitan areas rocketed 12percent from September a year ago, consumer price index data released by Statistics South Africa yesterday showed. The price of diesel overtaking petrol contributed to grain prices rising 17percent from September last year.

Despite the Bank's seven attempts to break inflation with 0,5percent interest rate increases since June a year ago, the consumer price index excluding mortgages (CPIX) ran further above the 6percent limit set by government policy.

September's quickening to 6,7percent from August's 6,3percent dashed hopes that Eskom's lower summer electricity prices would help contain inflation.

Razia Khan, Standard Chartered Bank regional head of research, said: "An awful inflation print for September, when the consensus expectation had been for a seasonal moderation in price pressures. This will come as a shock to the market, and calls into question the Bank's projection that CPIX will peak at 6,8percent.

"Under 'normal' circumstances, this would typically lead to at least another rate hike being priced in, but with speculation over a potential large foreign direct investment inflow into South Africa, and the rand supported, this will not necessarily be the case," Khan said.

A cautionary announcement by Standard Bank on Tuesday has fueled rumours that the banking group is about to be purchased by an international banking group. Standard is likely to release more details tomorrow.

T-Sec economist Mike Schussler told I-Net Bridge: "It's a shocker. This seals our fate for another interest rate hike and the chances of yet another after that is looming. The bond market will take a hit and the stock market will be influenced by these figures."