Photograph by: MARIANNE SCHWANKHART

Stats SA said yesterday that annual headline CPI slowed in line with expectations to 5.9% in October from 6.1% in September.

Headline inflation has stayed above the Reserve Bank's target band since piercing it in March 2007, peaking at close to 14% in August last year before gradually coming down.

As inflation has slowed, the Bank has reduced interest rates by 5 percentage points between December last year and August this year, totally unwinding increases in the two years to June 2008. But analysts said the dip back into the band could be temporary.

"Obviously, it creates some optimism in terms of consumer spending. But we should be a bit wary that the annualised rate could climb again towards year-end due to the base effects," said Christie Viljoen of NKC Independent Economists.

The Bank has said it expects inflation to fall within the target band on a sustainable basis by the second quarter of next year, and sees high electricity price rises as the main long-term risk to the outlook.

State-owned electricity firm Eskom will submit a revised request for tariffs after criticism of its initial plan to raise prices by 45% a year over three years.

The Bank expects inflation to fluctuate between 5.3% and 5.9%, provided electricity prices increase by only 25% a year over the next two years.

Cosatu spokesman Patrick Craven said the latest figures reinforced the union federation's argument that the main threat to the economy was unemployment, and not inflation.

He said: "We feel there is a stronger case against inflation targeting as we've seen inflation come down in recent months, while unemployment remained on the rise."

Craven said the focus should shift to job creation, which would contribute to poverty alleviation. - Additional reporting by Kea Modimoeng