Inflation at a four-month high

The consumer price index rose to 5.6% in February from a year earlier, compared with 5.3% the prior month, Statistics South Africa said on Wednesday. The median of 17 economists’ estimates in a Bloomberg survey was 5.5%.

Yields on government bonds pared an earlier drop. They fell 13 basis points before the data was released. They traded three basis points lower from closing levels at 12.08%

Forward-rate agreements starting in a month’s time show traders aren’t pricing in a rate cut at the March meeting and see a less than 10% chance of a 25 basis-point rate hike. The first chance they see of a cut is in July.

The uptick in inflation means the rate has moved further away from the 4.5% midpoint of the SA Reserve Bank’s (Sarb) target range, where it prefers to anchor expectations. It also comes a day after data showed average inflation expectations for this year and next remain above that midpoint, although declining slightly from the previous report.

“The stronger-than-expected reading for February gives further excuses for the Sarb to delay its easing cycle until after the election,” which is on 29 May, David Omojomolo, Africa economist at Capital Economics, said. “We now expect the first cut to be delivered in September. Even then, the spectre of uncertain fiscal policy will remain and could delay easing further.”

Governor Lesetja Kganyago has repeatedly said that until inflation retreats to 4.5% and settles there, the central bank will be unwilling to adjust its policy stance.

Analysts polled by Bloomberg predict the governor and his colleagues will leave interest rates at a 15-year-high of 8.25% when they announce their policy decision on 27 March.