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Economist: Rising food prices could hamper inflation rate decline

Experts expect the inflation rate to fall back within its target band of between 3% and 6% in the second half of the year.

Picture: Supplied

CAPE TOWN – Nedbank economist Mohammed Nalla says the higher than anticipated food inflation could hamper the inflation rate from declining by as much as predicted.

Experts, including the South African Reserve Bank, expect the inflation rate to fall back within its target band of between 3% and 6% in the second half of the year.

According to Stats SA's data, released on Wednesday morning, the annual consumer price inflation rate has decreased slightly to 6.6% in January.

Nalla says the sustained food inflation reflected in the data could extend the breach above the target range.

“That is still pretty much sustained, so food inflation remaining a lot higher than our own expectation and that still remains a risk. If food inflation does not ease off fairly sharply, it means a sustained and more material breach of the target ban.”

He adds that although the higher fuel price contributed a fair amount to the January’s rate, food prices remain the key focal point in the medium term.

“The basket was re-weighted last year and the contribution of transport as a weighting has declined while the weighting for transport has increased. That is why development in that food component will be quite important in the coming months.”