Inflation within range

A decline in food prices kept inflation just below the upper limit of the Reserve Bank's target in March. But an interest rate cut next month remains unlikely.

While most economists expected inflation to accelerate to 6% or higher, the consumer price index was up by 5.9% on a year ago, Statistics SA said yesterday.

The Reserve Bank targets a band of between 3% and 6%, and over the past year inflation has been steadily creeping towards the upper limit. In February, the number was also 5.9%.

Nedbank's economists were forecasting that inflation would be 6.1% and said in a research note the downside surprise "stemmed mainly from food prices that declined" over the month.

Even though the prices of sugar, sweets and desserts, milk, eggs and cheese, fish, fruit and meat were higher in March, according to the index, vegetables, hot and cold beverages, bread and cereals, and oils and fats reflected lower prices in March.

A drought in the US last year stoked fears that sustained food prices increases would again hit consumers.

Shireen Darmalingam, an economist at Standard Bank, said yesterday that the bank's economists expect food inflation to remain below 10%.

Food and non-alcoholic beverages account for less than a sixth of the basket of goods used to calculate inflation.

Standard Bank expects inflation to peak at 6.9% in the second half of this year and Darmalingam forecasts that South Africa's inflation rate would average around 6.0% this year, compared to 5.6% last year.

"We expect base effects on food inflation, further increases in fuel prices and the second-round pass-through from continued rand weakness to contribute to a further acceleration in inflation," the bank said.

When the Reserve Bank's monetary policy committee sits next month to decide on the interest rate, it will have South Africa's sluggish economic growth on its mind, though another rate cut is unlikely.

The International Monetary Fund adjusted its forecast for the country's growth downward earlier this week.

"Among middle-income countries, South Africa is forecast to grow at a muted 2.8%, owing to sluggish mining production and the weakness of demand in the euro area, its main export market," the IMF stated in its world economic outlook.

The IMF report also forecast rising unemployment for South Africa.

In the report, the IMF revised its GDP growth forecast for next year downward to 3.3% from 4%.