South Africa’s central bank will continue to focus on its mandate to bring inflation to within its 3% to 6% target range, and would act decisively against broader price pressures, its Governor Tito Mboweni said on Thursday.
”We are mindful, however, of the impact of these developments [higher food and fuel costs] on inflation expectations and the need to act decisively, and I emphasise here decisively, against any broader inflation pressures,” he said in a speech at the Reserve Bank’s annual general meeting.
Recent forecasts suggested the CPIX inflation measure may return to within the target range in the second half of 2008, Mboweni said in the written copy of his speech.
South Africa’s central bank has raised its repo rate by 300 basis points since June last year to tame inflationary pressures and high consumer spending, with the latest 50 basis points hikes in June and August.
CPIX has exceeded the top end of the range for four consecutive months, rising to 6,5% year-on-year in July, prompting speculation the repo may have to rise again at the next policy meeting in October.
Mboweni repeated that it should be noted that the main cause of inflation exceeding the upper end of the target range were beyond the direct inluence of monetary policy.
More recently, there had been evidence of a more generalised upward trend in inflation.
There were also uncertainties regarding the international environment given the recent turmoil in global markets sparked by a world credit squeeze.
But, the central bank had to remain focused on its mandate.
”Low and stable inflation remains the best contribution the bank can make to economic growth and development in South Africa,” he said.
”We are not being inflation targeting nutters but we have to remain focused on our mandate, so no-one gets confused,” he said in reply to a question after his speech.
High consumer spending, driven partly by credit, has been a concern for the central bank, but there were signs that demand was moderating.
The bank said in its annual economic report growth in household expenditure eased to an annualised rate of 7% in the first half of the year compared to 7,75% in the second half of 2006.
The slowdown was more pronounced in durable goods spending, with household expenditure in that category easing to 3,25% annualised in the first six month of 2007, from 15,5% in 2006.
”Household consumption has indeed started to slow but price and wage inflation continue to edge higher,” Reserve Bank head of research Johan van den Heever told reporters.
He added that while there may be some doubt as to when CPIX would peak or when it would return to the band, the bank was committed to bring CPIX back into the target range.
”The only thing you should not doubt is the resolve of the Reserve Bank to fight infation back into the target range. That will be done, there is no doubt about that,” he said. – Reuters