CONSUMER inflation rose at its fastest pace in more than two years last month, climbing to 5%, as the usual suspects, food and petrol prices, continued to accelerate, threatening the Reserve Bank’s inflation target.

Although some respite is expected in coming months on the back of recent declines in international oil prices, the bias is still towards interest rate hikes, particularly as the rand continues to trade relatively weaker. The rand was largely unchanged on the inflation data, and was trading at R7,59 to the dollar in afternoon trade, from R7,58 in the morning.

The local unit ended the day at R7,60 to the greenback. However, it has weakened about 17% since the beginning of this year. “The recent weakness of the currency, if sustained, is likely to cause the inflation target to be missed at the end of the first quarter of next year,” Investec economist Annabel Bishop said. This, she said, was despite the large petrol price cut that is on the cards for next month.

“In the absence of the recent effective rand depreciation being sustained, the lower petrol price would have served to keep CPIX from significantly breaching the upper limit of the inflation target next year,” Bishop said. Data released yesterday by Statistics SA show that CPIX (consumer price index less mortgage costs) rose 0,5% in the month. The 5% year-on-year rise is up from July’s 4,9%.

Headline inflation (CPI) rose 5,4% year on year, up from 5% in July. Last week, Bank governor Tito Mboweni said it would be “prudent” to adjust monetary policy now, given that secondary price effects were starting to come through in energy prices. The Bank has already hiked interest rates by one percentage point since June this year.  “It is our view that the current figures would do little to sway the Reserve Bank towards any new direction,” Eskom treasury economist Kabelo Masike said.

“Our interest rates view remains unchanged, that a 50-basis-points increase in October should be expected and a further 50 basis points in December remains firmly on the cards,” he said.

The transport category continued to place substantial pressure on inflation last month, which added 0,3 percentage points to the 0,5% month-on-month increase. This comes after the 4,6% month-on-month increase in the petrol price last month — from R6,73/l to R7,04/l.