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The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank (SARB) for its inflation target, was up 6.3 percent year-on-year (y/y) in December from 5.8 percent y/y in November, Statistics South Africa (Stats SA) said on Wednesday.

It was also revealed that annual CPI in 2009 struck 7.1 percent from 11.5 percent in 2008.

CPI was at 0.3 percent month-on-month (m/m) after registering 0.0 percent m/m in both October and November.

It was expected to have registered 6.5 percent year-on-year (y/y), according to a survey of 11 leading economists by I-Net Bridge. Forecasts among the economists ranged from 6.0 percent to 6.5 percent.

The December data breaks the two-month period in which CPI slipped back below the 6 percent radar level.

Nedbank economist Carmen Altenkirch said: "Inflation came in below market expectations at 6,3 percent, up from 5,8 percent in November. The sharp annual increase was largely due to base effects arising from the low petrol price established this time last year. The month-on-month increase was mainly due to the higher owner's equivalent rent, which was surveyed in December.

"Inflation is expected to fall back below 6 percent by March, remaining within the target band during 2010.

"The risk to inflation remains on the cost-push side, with the threat of Eskom's price hikes the key danger.

"The strength of the rand combined with weak domestic demand were the two main factors helping to push inflation, particularly of durable and semi-durable goods, lower during the latter half of 2009. The trend is expected to continue this year, particularly if the rand remains around current levels."

Investec economist Annabel Bishop said: "CPI inflation left the target range in December, as expected, due to seasonal and statistical base effects. January's outcome is expected at 6.4 percent y/y.

"Today's outcome does not change our view either in terms of the future path of interest rates or inflation. With the demand side of the economy and labour market still in recession and only likely to emerge from it in early 2010, there is little chance of any interest rate hikes before the fourth quarter of 2010.

"Even this monetary tightening at the end of next year will be heavily dependent on economic performance and may well be delayed until 2011. The move forecast in fourth quarter of 2010 is based on the belief that monetary policy will be returned to a more neutral stance, should the strengthening economy warrant it. Electricity tariff increases of 35 percent will keep inflation CPI inflation out of target in 2011 from when the tariff hikes are instituted.

"While the chance of a 50bp cut at the March MPC still remains, it seems that the SARB will keep a close focus on inflation, despite CPI inflation being largely structural (driven by administered prices) in nature."