Inflation Outlook in Limbo

SOUTH AFRICA - Report 25 Sep 2014 by Iraj Abedian

The increase in the core inflation rate – from 5.3 to 5.8% between January and August 2014 – suggests that so-called “second round effects” of inflation, i.e. past inflation causing an inflationary spiral, are surfacing steadily. At the same time, the headline inflation rate has been in breach of the South African Reserve Bank (SARB)’s 3-6% target for six consecutive months (see Graph 1), with no convincing hints of a considerable reprieve yet.

Graph 1

Headline, core inflation rates and repo rate, South Africa