CPIX — the measure used by the South African Reserve Bank (SARB) to gauge inflation — is expected to fall within the target range of 3-6% before the end of the year, SARB governor Tito Mboweni said on Monday.
Addressing the Cape Town Press Club, Mboweni said CPIX inflation — which excludes mortgage rates — had declined from 11,3% in October and November 2002 and 10% in January 2003 to 6,3% in August 2003.
He said CPIX was expected to “recede within the target range in the immediate (before December 2003) future”.
Mboweni added that since 1998 the SARB haD been “remarkably successful” in containing inflation despite exchange rate instability and the international financial turmoil experienced in 1998.
CPIX inflation, he said, averaged 7,1% for 1998 and only rose from a 12-month rate of 6,5% in February to 7,6% in October 1998 before starting to decelerate again. “During that period, tight monetary policy helped to contain inflation.”
He added that the gradual waning of inflation in 2000 and 2001 had been interrupted however when inflationary pressures had mounted in the wake of the sharp depreciation of the rand towards the end of 2001.
“Essentially driven higher by the cost-raising effects of the depreciated exchange value of the rand, CPIX inflation rose from year-on- year rates of approximately 6% during the second half of 2001 to 11,3% in October and November 2002.
“Initially, CPIX inflation accelerated mainly on account of the sharp increases in the prices of food products which were largely related to the depreciation of the rand. In subsequent months, the rise in CPIX inflation became more broadly based. The rise in non-food CPIX inflation resulted from higher rates of increase in the prices of housing services, furniture and equipment, medical care and health expenses, new and used vehicles, and transport running costs.”
The inflationary momentum which had built up in the course of 2002, was moderated by a more conservative monetary policy stance and the recovery of the exchange value of the rand since about the middle of 2002.
“Inflationary pressures therefore waned in the final months of 2002 and the first half of 2003. By January 2003 CPIX inflation has already declined to 10% and receded to 6,3% in August 2003. CPIX is expected to recede to within the target range in the immediate (before December 2003) future,” Mboweni stated.
On the issue of interest rates, he indicated that interest rates would be adjusted when it was clear that inflation would fall outside the target range if left unchanged. – I-Net Bridge