Home News Poor hit as S.Africa inflation breeches central bank target

Poor hit as S.Africa inflation breeches central bank target

Published on 21/05/2014

South African consumer inflation punched through the reserve bank's six percent upper target in April, hitting consumers and posing a stern challenge for policymakers.

Consumer prices rose 6.1 percent thanks to a rise in the cost of basic food items, housing and transport, according to Statistics South Africa.

The data comes as South Africa’s Reserve Bank meets to discuss further raising interest rates.

High inflation and a weak rand forced the bank to raise rates by half a percentage point in January to 5.5 percent, despite the risk that it may curb already slow growth.

Economists believe that the strengthening rand may give the bank some room to delay a hike when it makes its latest rate announcement Thursday.

“We do not expect the Reserve Bank to raise rates at this Thursday’s meeting, given that the rand has strengthened substantially,” Nedbank said in a note to clients.

“However, given the need to balance growth prospects with higher inflation we anticipate that rates will rise by 25 basis points at two of the following four meetings.”

While the bank is likely to remain restrained, hard-up South Africans will likely feel the pinch.

Growth in South Africans’ disposable income has been slowing in recent years and will face “increased downward pressure” in the months ahead, according to FNB analysts, with the poor hit hardest.

“Food price inflation has shown a sharp acceleration, and the fact that this impacts more severely on the poor, given the higher weighting of food expenditure in their overall expenditure basket.”

With one in four South African workers without a job and millions more giving up the hunt, the country sees frequent social unrest.