Data released today shows that South Africa’s CPIX inflation rate has gone up to 7.3% in the year to October, up from 6.7% in September. This figure of 7.3% is a new four and a half year high. The consumer price index (CPI) also increased by an annual rate of 7.9% in October compared to 7.2% in September. Chances are now very strong that there will be another interest rate increase next week.

These figures are no surprise to many as analysts had expected the inflation figures to rise. Coupled with the GDP (Gross Domestic Product) data released yesterday, The Reserve Bank may not have any other option but to increase the interest rates. On the back of the release of this data, the Rand has gotten slightly weaker, falling from R6.98 / US$ to R7.00 in a 20 minute period.

The figure of 7.3% now seems edging even further away from the Central Banks target of having inflation between 3% and 6%. Will this target ever be met is the question? Maybe in a couple of month’s time it could be met but for the present it does not look like it. The ever increases oil prices are also fuelling the inflation rate and as an economy South Africa has no control over the world oil prices and we just have to bare the brunt of it for now. Many people have called for the Central Bank to stop increasing interest rates but there are some circumstances beyond the banks control, such as the oil price, which force the bank to have to make a decision to increase the rates.

How can what some term ‘run away’ inflation be eased? Is raising the interest rates going to help ease inflation?

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