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Consumer prices rise slightly faster than expected, led by fuel

| Economic factors

Inflation accelerated to 5.1% in July from 4.6% in June, coming in slightly higher than economists anticipated.

Analysts expected inflation to rise to 5% due to municipal tariff increases and base effects involving food and fuel.

Statistics SA reported on Tuesday that July’s consumer price index (CPI) was 108.5 points, up from 107.6 in June and 103.2 in July 2017.

The annual change in CPI is the key measure used by the Reserve Bank’s monetary policy committee to set interest rates.

The committee will announce its next interest rate decision on September 20.

Economists generally believe the central bank will hold its repo rate at 6.5% until 2019, but Investec Bank economist Annabel Bishop recently broke ranks, forecasting interest rates may rise by 25 basis points as early as the next meeting if the rand continues to weaken.

Statistics SA reported the fuel component of CPI showed annual inflation of 25.3% in July from the same month in 2017.

Food inflation was 3%, helped by bread and cereal prices declining by 3% over the year.

Fish was 6.6% more expensive, and meat 5.6%.

Vegetable inflation was 8.8%, while fruit prices fell 4.2%, according to Stats SA.

The residual effects of April’s VAT hike, higher fuel prices, rand depreciation and rising food prices are all likely to push up inflation in the next months, said Novare economic strategist Tumisho Grater.

FNB expected July inflation to rise to 5% year on year due to a weak exchange rate and the elevated oil price, while Investec expected inflation of 4.9%.

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