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SA’s March CPI slows, but reprieve seen temporary

Inflation came in at 6.3 percent year-on-year in March, in line with forecasts.

new Mandela money

JOHANNESBURG - South Africa's headline consumer inflation slowed sharply as expected in March, data showed on Wednesday, pulled down mainly by a drop in the price of petrol.

The decline is, however, likely to be temporary as an ongoing drought looks set to push food prices higher, putting pressure on the central bank to raise interest rates further this year.

Inflation came in at 6.3 percent year-on-year in March, in line with forecasts in a Reuters poll, from 7 percent in February.

On a month-on-month basis, prices were up 0.8 percent after an increase of 1.4 percent in the previous month, Statistics South Africa said.

Analysts expected prices to resume their upward trend, with a rate hike still possible in May as the Reserve Bank battles to bring inflation back to within its 3-6 percent target range.

"We anticipate a peak in inflation of well over 7 percent in December when the effects of the drought and a weak rand increase food prices significantly," Nedbank said in a note.

"The monetary policy committee will remain focused on the upside risks to inflation and continue with their interest rate hiking cycle."

The rand turned slightly firmer against the dollar after the CPI data.

The Reserve Bank raised its benchmark repo rate by 25 basis points to 7 percent in March to rein in CPI despite fears about waning economic growth and reiterated it would remain focused on its mandate of maintaining price stability.

In its own forecasts, the bank expects inflation to peak at 7.3 percent in the fourth quarter of 2016.

Stats SA said core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, was at 5.4 percent year-on-year in March from 5.7 percent in the previous month, and at 0.9 percent month-on-month from 1.4 percent.

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