Since the last meeting of the South African Reserve Bank’s monetary policy committee (MPC) the rate of CPIX inflation has remained below the mid-point of the inflation target range, Reserve Bank Governor Tito Mboweni said on Thursday.
In a statement issued following the first of the MPC meetings for 2004, Mboweni said the success achieved in bringing inflation down to levels last experienced in the 1960s has been a major accomplishment of the macroeconomic policies pursued by the authorities, prudent monetary policy, disciplined fiscal policy, the significant recovery in the external value of the rand and the moderation in food price increases.
“All indications are that, on the basis of this improved inflation performance, the pick-up in growth that is already evident is likely to improve during 2004 and 2005,” he said.
In the review of the inflation outcome, the MPC said the 12-month rate of increase in the consumer price index for metropolitan and other urban areas excluding the interest cost of mortgage bonds (the CPIX) decreased from 11,3% in October and November 2002 to 6,3% in August 2003, and moved below the 6% upper limit of the inflation target range to a value of 5,4% in September.
CPIX inflation then slowed down further to a year-on-year rate of 4% in December 2003, before increasing marginally to 4,2% in January 2004. For the year 2003 as a whole CPIX inflation averaged 6,8% compared with 9,3% in 2002.
Measured from quarter to quarter, the slowdown in CPIX inflation was even more impressive. This rate of increase in the CPIX decreased from a seasonally adjusted and annualised level of 12,4% in the second quarter of 2002 to 1,2% in the fourth quarter of 2003.
A number of factors contributed to the deceleration in the inflation rate in South Africa. including the 4% increase in the repo rate during 2002.
“This restrictive monetary policy stance and the discipline applied in government finances led to a decline in inflation expectations. The recovery in the exchange rate of the rand from the beginning of 2002 assisted in this process and eventually led to a decline in the prices of imported goods,” the MPC said.
In addition slower rates of increase in food and energy prices also contributed to the lowering of inflation. In fact, if energy and food prices are excluded from the CPIX, the 12-month rate of increase in the prices of other goods and services declined from a peak of 8% in November 2002 to 5,6% in January 2004, Mboweni added.
Prices for services excluding the cost of mortgage bonds remained sticky. After fluctuating around a level of 8% in the first nine months of 2003, the 12-month rate of increase in these prices moderated somewhat from a peak of 8,6% in September 2003 to 7,8% in January 2004. By contrast, the rate of increase over 12 months in the prices of consumer goods fell from 13,4% in October 2002 to 2,2% in January 2004.
A slowdown in the rate of increase in the prices of domestically produced goods and the decline in the prices of imported goods caused the year-on-year rate of increase in the all-goods production price index to decrease from 15,4% in September 2002 to 0,2% in August 2003.
Subsequently, the production price index declined throughout the last five months of the year. For the year 2003 as a whole, overall production prices rose by 1,7% compared to 14,2% in 2002. The year-on-year rate of decrease in the all-goods production price index moderated from -1,8% in December 2003 to -1,4% in January 2004, he said. — I-Net Bridge