S. African Inflation in Target Range for First Time Since 2007

By Nasreen Seria

Nov. 25 (Bloomberg) -- South Africa’s inflation rate fell into the central bank’s 3 percent to 6 percent target band for the first time in more than two years, giving Governor Gill Marcus room to keep the key interest rate unchanged for longer.

Headline inflation eased to 5.9 percent in October from 6.1 percent in the previous month, the Pretoria-based statistics office said on its Web site today, in line with the median estimate of 23 economists surveyed by Bloomberg. Prices were unchanged in the month.

The Reserve Bank left its repurchase rate unchanged at 7 percent for a third consecutive meeting on Nov. 17, concerned that rising electricity costs will boost inflation, just as six rate cuts since December helped to pull the economy out of recession. Inflation eased last month after the government cut gasoline costs by 5 percent on Oct. 7 as the rand’s 41 percent surge against the dollar since March slashed import costs.

“A move to within the target band will create excitement on the markets in regards to prospects for monetary policy,” Gina Schoeman, an economist at Macquarie First South Securities in Johannesburg, said in a note to clients before today’s data. “However, we caution that sticky cost-push pressures are likely to keep CPI at the top-end of the target band for quite some time.”

The Reserve Bank said on Oct. 18 that the benchmark interest rate of 7 percent is “adequate” to curb inflation and support economic growth. The bank expects the inflation rate to stay inside the target until the fourth quarter of 2011, when it is expected to average 5.5 percent.

Recession Ends

That forecast is based on a 25 percent annual increase in electricity prices over the next two years. Eskom Holdings Ltd., the state-owned power utility, has applied to South Africa’s energy regulator to increase electricity tariffs by 45 percent a year over the next three years.

The central bank cut its key interest rate by 5 percentage points between December and August to help boost the economy, which the government expects will contract 1.9 percent in 2009. The economy expanded an annualized 0.9 percent in the third quarter from the previous three months, ending the first recession in 17 years, the statistics office said yesterday.

To contact the reporter responsible for this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net.