From Reuters

A plunge in the rand is combining with record high maize prices to drive up inflation expectations in South Africa, increasing the chance of interest rate hikes and raising concerns about food security before a spring election.

Patchy rains in the last two years have hit South African farmers, pushing the price of white maize, the human staple, to a record 3,090 rand per tonne this week. Yellow maize, used mainly in animal feed, has also hit its highest ever level and a shortage is looming.

With food accounting for around a 15 percent weighting in South Africa’s consumer price index (CPI), the lofty maize price – which feeds through into everything from meat to bread – is going to deepen concerns at the central bank about price pressures.

They are already bubbling away because of the plummeting rand, which is trading at its weakest levels in more than five years.

Reserve Bank Governor Gill Marcus, in her last monetary policy statement in November, made clear any further monetary easing was off the table, with inflation risks seen on the upside “mainly as a result of further potential exchange rate pressures”.

Since then the rand has weakened 8 percent against the dollar, compounding a 20 percent drop in 2013, to touch 10.9620 this week. It has also suffered equally badly against the euro and sterling.

Headline inflation moderated to 5.3 percent in November, the latest available data, but it has breached the top end of the central bank’s target range of 3-6 percent, in July and August last year.

Written by Xola Potelwa | Read more at Reuters