South Africa’s inflation rate is expected to remain within the target range of between 3% and 6% CPIX (consumer inflation less mortgage rates) within the forecast period, South African Reserve Bank (SARB) forecast models show, according to the SARB’s head of research Monde Mnyande.
At the same time, the high world oil price and domestic demand growth, as well as the country’s large balance of payments deficit, remained the most significant threats to the SARB’s inflation target, Mnyande told Parliament’s finance committee on Friday.
According to the latest figures presented by the SARB, South Africa’s real domestic final demand slowed from an annualised rate of 6,5% in the first quarter of 2004 to 5,5% in the second quarter. This was the net result of a deceleration in the growth of real final consumption expenditure by households and general government, as well as in real gross fixed capital formation.
Real final consumption expenditure by households, however, remained strong in the second quarter of the year, at 4,5% y/y from 5% in the first quarter.
Protracted strength in household spending was “evident in all the major spending categories”, the SARB noted.
Meanwhile, also testifying at the committee on Friday, SARB Governor Tito Mboweni said he believed there was “no house price bubble in South Africa” at the moment, but that there was a danger it could develop.
“People have to be very careful because we are beginning to see some signs of stress, particularly in Johannesburg and Cape Town,” he noted.
“An increasing number of people buying houses are likely to find themselves with an asset they can’t sell. Prices are too high, and they may be forced to sell them at the real price and will lose. But for now we’re not that worried.”
The latest house price research from Absa shows South African house prices increased at an average rate of 25% over the past 12 months. – I-Net Bridge