Inflation big concern for S.Africa c.bank: Governor

The targeted CPIX gauge hit a record 11.6 percent year-on-year in June, well above the 3-6 percent target, raising fears interest rates may have to rise again at next week's policy meeting despite signs of slowing economic growth.

Inflation big concern for S.Africa c.bank: Governor

South Africa's central bank is "very concerned" about inflation which, having initially been stirred by higher food and energy prices, has now become more generalised, Governor Tito Mboweni said on Tuesday.

The targeted CPIX gauge hit a record 11.6 percent year-on-year in June, well above the 3-6 percent target, raising fears interest rates may have to rise again at next week's policy meeting despite signs of slowing economic growth.

"Recently we've had disappointments with inflation developments in the country emanating initially from higher food and energy prices, but then becoming more generalised," Mboweni said in a speech.

"We're outside the target now, and we are clearly very concerned about this situation," he said.

Mboweni said the central bank was more focused on the outlook for inflation rather than the latest figure.

"Inflation targeting is forward-looking ... what influences the central bank is not what the last number of inflation published was, but what is the likely outlook going forward," he said.

The bank's monetary policy committee (MPC) has already raised the key repo rate 10 times -- by 50 basis points each -- to 12 percent over the past two years to try tame inflation.

But price pressures keep building, driven largely by food and fuel costs.

Concerns about economic growth, however, could stave off more rate increases. Consumer spending has slowed sharply, with new vehicle and retail sales contracting, and house prices falling.

Most analysts, and the central bank, expect inflation to ease in 2009.


Inflation easing

CPIX is seen peaking over the next few months before retreating, aided by a change in the consumer inflation basket reducing the weighting for food, one of the main drivers of higher prices.

Domestic fuel prices fell this month after a sharp increase in the first half of the year, with a further decline expected in September on lower crude oil prices.

"We all of us have to do our best to bring inflation back within the target band in the medium term ... the responsibility is for all of us -- the government, the central bank ..." Mboweni said.

He again criticised government for agreeing an average 27.5 percent increase in electricity prices from July to help state electricity firm Eskom [ESCJ.UL] fund its multi-billion spending programme.

Mboweni defended the country's inflation targeting framework, that has come under attack from the ruling African National Congress' trade union allies, adding the policy would stay.

"I don't blame people for complaining that monetary policy is tighter, but let's not confuse that with abandoning the (inflation targeting) framework."

"Even if we were to abandon the framework, any central bank worth of its salt would still pursue low inflation anyway, and the danger is that you would not be able to hold them accountable because you don't know what their target is."

Labour federation COSATU is hoping to press a more left-leaning ANC, under new leader Jacob Zuma, to scrap the target and loosen monetary and fiscal policy.

Reuters

Last Mod: 06 Ağustos 2008, 12:20
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