South African Reserve Bank Governor Tito Mboweni said on Tuesday that the bank expected inflation to peak in February 2008 and then gradually come back to the bank’s 3% to 6% target range.
Mboweni said in a speech in Johannesburg that economic growth of above 4,5% was contributing to inflation, but there was a slight 1% chance the key CPIX (consumer inflation less mortgage costs) gauge could return to the range earlier, in the fourth quarter of this year.
Mboweni reiterated that the major inflationary influences were food and oil prices, but even without these, prices were trending upwards. He added there was clear evidence that the second-round effects of inflation have taken root.
The central bank was committed to economic growth, but its main role was to keep inflation down, and more microeconomic reforms were needed to deal with supply constraints.
”Technical estimates show that South Africa’s economic potential growth is 4,5%. The challenge is that we are growing above that and hewn that happens, you face supply constraints, demand is outstripping supply and when that happens, you have inflationary pressure,” he said.
”A more concerted effort must be put on micro reforms that President [Thabo] Mbeki tabled in Parliament four years ago,” Mboweni added.
Growth in the continent’s economic powerhouse slowed to an annualised 4,5% in the second quarter of 2007 from 4,7% in the first quarter and 5% the whole of last year, weighed down mostly by poor manufacturing expansion and higher rates.
Some analysts have criticised the central bank’s move to lift interest rates once again last week, saying the monetary authorities might be focusing too much on inflation targeting at the expense of economic growth.
The bank raised its key repo rate, at which it lends to commercial banks, by 50 basis points to 10,5% last Thursday, citing a deteriorated inflation outlook. CPIX inflation came in above the target range for the fifth month in a row in August.
”I’m committed to higher growth — we are aware we have to play a part here and our role is to get inflation lower,” Mboweni said on Tuesday.
”We have to anchor inflation expectations on the lower side; people need to feel the pinch.” — Reuters