The government will not abandon its inflation-targeting policy of between 3% and 6%, Finance Minister Trevor Manuel said on Wednesday.
”Our adoption of inflation targeting in the late 1990s has enabled our economy to grow and to become more competitive,” he told the National Assembly.
”We recognise that interest rates are a blunt instrument to achieve the objective of lower inflation.
”However, it is also evident that even the non-food and oil components of inflation are increasing and so, during this time of heightened turbulence, it is important that we continue to use inflation targeting as our anchor upon which we steady our economy and invest for higher growth.
”We cannot, at the first signs of stress, abandon our anchor,” Manuel said in reply to points raised during the debate on the budget.
On the rising oil price, he said the Financial Times this week reported that all oil futures contracts entered into in the past few weeks for delivery between the present date and 2016 were struck at a price over $100 a barrel.
This suggested that while oil prices might fall, it was clear oil prices were likely to stay above $100 a barrel for a considerable amount of time.
”This has implications for how we think about the future shape of our cities, our spatial geography, our public transport systems and its implications for moving people and goods in a more efficient manner.”
There had been questions during the debate about the appropriateness of increasing the general fuel levy and the Road Accident Fund levy at a time when fuel prices were rising.
The general fuel levy was being increased by six cents a litre, or 5% — below the projected rate of inflation.
It was true that fuel taxes impacted on the poor and rising fuel costs impacted negatively on disposable income.
”However, we must also accept that certain products create negative environmental externalities and it is appropriate that taxation be used to encourage conservation and more efficient use.
”Going forward, as we invest in public transport systems, we have to see the tax system as playing a role in encouraging greater use of public transport,” Manuel said.
Meanwhile, South Africa’s food prices have not increased by as much as the rest of the world, Manuel said.
Winding up the debate on the Appropriations Bill, which provides the legislative framework for last month’s budget, he said: ”The better planting season in 2007 has meant that for many products, our prices have not increased by as much as the rest of the world.”
Nevertheless, he said, a 30% increase in the price of maize and a 13,4% increase in the food component of the CPIX (consumer inflation less mortgage costs) basket had meant severe hardships for many South Africans.
”In the budget, we took steps to increase the school nutrition programme by over 30% next year. Social grant increases take account of higher inflation, with the state old-age grant rising by 8,5% and the child-support grant by 10%,” he told MPs.
”We have also budgeted for a continual expansion of the social security system, extending the number of beneficiaries that receive grants beyond the 12,5-million at present. — Sapa, I-Net Bridge