The Consumer Price Index (CPI) accelerated for a second month to a four-month high of 5.8% y/y in January 2014 as the direct impact of Rand weakness exerted upside pressure on consumer prices. The increase was sharper than expectations for price growth to rise from 5.4% y/y in December to 5.7% y/y in January.
The jump in CPI was driven by a steep 0.7% m/m increase following on from 0.3% m/m growth in December. A key driver of CPI in recent months has been fuel prices, which have been bolstered by the rapid depreciation in the rand, and this is likely to continue to exert upside pressure on CPI in the short to medium term. Additional upside pressure stemmed from food price inflation that rebounded off multi- year lows tested in Q4 2013. The most pertinent short term risk factor to CPI is the persistently vulnerable Rand, which has already culminated in a forced interest rate hike by the SARB in January 2014 due to the negative impact it has had on the inflation outlook.