March 20, 2019 / 11:02 AM / a year ago

South Africa's February inflation tame, central bank to keep rates pat

Children stand inside a shop in Nkaneng township, Marikana's informal settlement in Rustenburg, file. REUTERS/Siphiwe Sibeko

JOHANNESBURG (Reuters) - South African inflation was in line with forecasts in February at 4.1 percent annually and 0.8 percent month-on-month as food prices remained steady, supporting expectations the central bank will keep interest rates unchanged.

Price growth has trended below the mid-point of the Reserve Bank’s target of between 3 and 6 percent for three months in a row, prompting calls for a cut in lending rates to support flagging economic growth.

Headline consumer inflation quickened to 4.1 percent year on year in February from 4.0 percent in January, while on a month-on-month basis prices rose 0.8 percent after falling 0.2 percent a month before, Statistics South Africa said on Wednesday.

There is political pressure to broaden the central bank’s mandate to include fostering economic growth as well as price stability. That tweak may have come a step closer after President Cyril Ramaphosa said the government would pursue nationalisation of the bank — a key resolution of the ruling African National Congress ahead of May elections.

A Reuters poll on Wednesday found the bank was likely to leave rates unchanged next week, however, and with a weak currency threatening to stoke inflation, it probably won’t cut this year after leaving rates steady at 6.75 percent in January.

Analysts see consumer prices climbing steadily in 2019 due to higher fuel prices. Ailing power utility Eskom, which has cut power nationwide for the last seven days amid a deepening operational and financial crisis, is set to hike tariffs by 13 percent this year.

“There isn’t much pressure on prices coming from the demand side with latest round of power cuts, which will instead put pressure on growth,” said Nedbank economist Busisiwe Radebe.

“So we don’t see inflation breaching the bank’s upper target this year, but as food prices begin to rise you’ll perhaps see a mild tightening cycle begin later this year.”

Reporting by Mfuneko Toyana; Editing by Alexander Winning and Catherine Evans

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