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Wednesday, August 27, 2008

South African Inflation Accelerated In July 2008

South African inflation accelerated to 13 percent in July, the fastest pace since the government began compiling the data in 1998, after the state-owned electricity utility raised prices and fuel costs increased. The CPIX inflation rate, which excludes mortgage costs, rose from 11.6 percent in June, Pretoria-based Statistics South Africa said today. Prices rose 2.5 percent in the month.

The Reserve Bank expects inflation to peak at an average of 13 percent this quarter and slow ``significantly'' by the first quarter of next year, Governor Tito Mboweni saidearlier this month after leaving interest rates unchanged.

Fuel and power costs surged an annual 23 percent last month, compared with 9.6 percent in June, the statistics office said today.

Eskom, which supplies 95 percent of the country's power, hasn't kept pace with rising demand after the government delayed investment in new plants. A power shortage shut gold and platinum mines, the country's biggest export earners, for five days in January, followed by scheduled blackouts of up to four hours to cities.

The power utility raised prices last month to help pay for a 343 billion-rand ($44 billion) five-year expansion plan aimed at easing the shortage. Electricity tariffs may increase again after the National Energy Regulator agreed to allow Eskom to pass on higher coal and diesel costs to customers.

Improving the inflation outlook are expected changes to the measurement of the consumer price index next year. The statistics office said on July 1 it will reduce the weighting of food in the index, possibly lowering the inflation rate. The CPIX inflation rate will probably drop to about 9 percent in January from 12.2 percent in December, and reach the 6 percent upper end of the target range by July, allowing the central bank to begin cutting interest rates from June.

The central bank will also switch to targeting the headline inflation rate, rather than CPIX from next year.

The headline inflation rate, which includes mortgage costs, rose to 13.4 percent last month from 12.2 percent in June. Core inflation, which excludes mortgage interest and some food items, accelerated to 13.7 percent from 12 percent.

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