The increase in South Africa's consumer price index excluding mortgage rate changes (CPIX) for metro and other areas, which is used by the South African Reserve Bank (SARB) for its inflation target, was up 10.4 percent year-on-year in April from 10.1 percent year-on-year in March, Statistics South Africa (Stats SA) said on Wednesday.

CPIX was up 1.6 percent month-on-month after it increased 1.6 percent month-on-month in March.

This is the thirteenth month running that CPIX has been above the six percent upper target limit.

Headline consumer prices — the 12-month rate of change in the consumer price index for metropolitan areas — was up 11.1 percent year-on-year in April from a 10.6 percent year-on-year increase in March.

The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, was up 10.2 percent year-on-year in April from 9.8 percent year-on-year in March.

CPIX was expected at 9.9 percent, an I-Net Bridge survey found, with forecasts ranging from 9.8 percent to 10.3 percent and from just 6.3 percent a year ago.

Headline CPI was expected to have remained unchanged at 10.6 percent, but still surpassing the high levels seen in early 2003.

Forecasts for CPI ranged from 10.4 percent to 10.9 percent, from 7.0 percent a year ago.

Stats SA said the annual increase of 10.4 percent in the CPIX for the historical metropolitan and other urban areas was mainly due to relatively large annual contributions in the price indices for food (+4.5 percentage points), transport (2.1 percentage points), housing excluding interest rates, household operations, medical care and health expenses, fuel and power, education, personal care, cigarettes, cigars and tobacco, and clothing and footwear.

This was counteracted by a decrease of 0.1 in furniture and equipment.

The annual increase of 11.1 percent in the CPI for the historical metropolitan areas was mainly due to relatively large annual contributions in the price indices for food (+3.8 percentage points), housing, transport, household operations, medical care and health expenses, education and fuel and power.

Annual CPIX for 2007 was at 6.5 percent from the 4.6 percent in 2006, while annual CPI was at 7.1 percent from the 4.7 percent in 2006.

Mike Schussler, T-Sec:

"That seals the case for interest rate hikes. Inflation continues to shock. We are in a high GDP slowdown environment, which is not good for bonds nor the local stock market, and in the longer run not good for the rand either. I think this is a country in dire straits."

Monale Ratsoma, Absa Capital:

"These numbers combined with the governor's recent hawkish comments are increasingly pointing to a 50-basis-point rate hike in June, and the market is now pricing in a 70 percent chance of another rate hike in August."

Jean Mercier, Citigroup:

"I was going for a figure of 10.2 percent, but it still defeats my expectations. I think we are very close to the peak, but it will be very difficult to get back to our target any time soon."

Annabel Bishop, Investec:

"Annual CPIX inflation rose to 10.4 percent year-on-year in April, well above expectations. The key drivers were higher food and petrol prices and household operation costs, with inflationary pressures becoming more broad based.

"In the absence of substantial hikes in electricity tariffs, CPIX inflation is likely to fall back within the inflation target range in Q3.09, peaking in 2008 in the third quarter. With electricity tariff increases of 30 percent per year or more, it would be unlikely to re-enter the inflation target range before 2010.

"We continue to believe that the SARB will hike interest rates by 50bp in June and another 50bp in August."

I-Net Bridge