There could be “inflationary consequences” for South Africa if economic growth was higher than the annual 4,5% rate shown by research to be the country’s potential output rate, according to South African Reserve Bank (SARB) governor Tito Mboweni.
Addressing members of Parliament’s Finance Committee on Wednesday, Mboweni said: “If we are growing at around 5% … which we currently know might be a little ahead of our potential output, technically it might mean there are inflationary consequences down the road.”
Research showed that South Africa’s potential output was 4,5% annually, he revealed, much lower than the government’s targeted average of 6% GDP growth between 2010/14. This is also slower than the 4,9% y/y GDP growth the country posted in 2005.
Meanwhile, the SARB’s senior deputy head of research, Brian Kahn, told the committee that the bank was expecting a slowdown in the economic growth rate in 2006 because of slower growth in both the manufacturing and mining sectors, although consumer demand remained strong.
“We expect a slightly lower rate of increase this year due to declines in mining and manufacturing, but this will be offset by the capital spending programme,” he said.
Kahn also noted that the SARB believed that the current rate of wage increases was not a threat to inflation, given that unit labour cost rises were within the inflation target range.
“We don’t see any major [inflationary] pressure coming from wages,” Kahn told MPs. – I-Net Bridge