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Tuesday, September 23, 2008

South African Inflation Rises Again In August

South African inflation hit a record annual level for the third consecutive month in August, reaching 13.6 percent, as electricity and food costs continued to rise. The CPIX inflation rate, which excludes mortgage costs, increased from 13 percent in July according to today's data from the Pretoria-based Statistics South Africa. Prices were up by 0.9 percent month on month.

The central bank has increased its repurchase rate by 3 percentage points since June last year to the present level of 12 percent as inflation soared above its 3 percent to 6 percent target range.

The bank now expects inflation to drop within the target by the second quarter of 2010. Higher interest rates have also hurt consumer spending, and retail sales are falling, dropping by a record annual 4.6 percent in July, according to separate data from the statistics office. This is the fifth consecutive month in which retail sales have fallen. Consumer spending growth slowed to an annualized 1.2 percent in the second quarter, the lowest in more than five years, and South African vehicle sales plunged an annual 30 percent in August, the biggest drop in 14 years. Manufacturing output growth was also down to a year on year 3.3% in July.

The weakening in the economy, and the probability that inflation may now be about to slow make further rates increases unlikely in the short term.

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