Staff Writer 
By Monique Vanek, Bloomberg
South Africa’s central bank governor said policymakers are seeing early signs of second-round inflation effects as underlying price pressures build, emphasising the need to act.
When the central bank hiked interest rates in May for the first time in three years by 25 basis points to 7%, it didn’t have the latest inflation expectations, Lesetja Kganyago said in an interview with broadcaster CNBC Africa on Friday.
“We now have inflation expectations, and expectations have drifted away from target,” he said.
“And what we have seen is that all price setters are expecting inflation [to be] higher, and that is what the central bank has got to act on, reining in those expectations.”
Core inflation, which excludes volatile shocks from food and oil, has ticked up and is expected to only peak in the first quarter of next year, Kganyago added. The gauge quickened to 3.8% last month from 3.6%, and overall inflation accelerated to 4.5% from 4%.
The bank is committed to returning inflation to the 3% target, Kganyago said.
Economists surveyed by Bloomberg over the past week expect the central bank to lift interest rates by another quarter percentage point in the third quarter.
Kganyago said the US-Iran deal signed earlier this week left considerable uncertainty. While the resumption of oil flows has eased some pressure, he cautioned that prices are unlikely to return to pre-conflict levels anytime soon.
Many analysts expect oil prices to remain elevated into next year, he added.
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