South African bonds were slightly weaker on Wednesday morning after the release of local inflation data. The Consumer Price Index for December was reported by Statistics SA to be 6.8%, slightly higher than that of the corresponding annual rate of 6.6% in November last year. Analysts had expected expect consumer inflation to have moderated to an annual 6.5% in December. Inflation erodes the purchasing power of a bond’s future cash flows; higher rates of inflation mean investors will demand higher yields to compensate for their inflation risk. Rand Merchant Bank’s John Cairns said local inflation had expected to decrease to 6.4%, at which point it would have been "the start of a disinflationary trend" that would open the way for interest rate cuts in May. The bid on the R186 bond wads 8.68% from Tuesday’s 8.64%. The bid on the R207 was 7.96% from R7.92%.
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