Mboweni: Inflation outlook improves

South Africa’s inflation outlook has improved and it is hoped that an easing since August is the start of a consistent downward trend, central bank Governor Tito Mboweni said on Thursday. He also said in a speech at a diplomats dinner that while the local banking system had largely escaped the global credit crisis, the real economy was not immune.

South Africa’s consumers and producer inflation eased more than expected in October, data showed this week, which together with slowing growth has raised speculation of a cut in interest rates.

The targeted CPIX inflation slowed to 12,4% year-on-year from 13% and factory gate inflation fell to 14,5% from 16% previously.

Most analysts expect the central bank to start unwinding the five percentage points in rate hikes made since June 2006 early next year, but markets are pricing in a cut in December. The repo rate stands at 12%.

Mboweni said the inflation outlook had improved to some extent, with previous upside risks — global food and oil prices — falling, and domestic demand pressures subsiding in response to previous rate increases.

”The most recent measure, published yesterday, showed that CPIX inflation declined to 12,4% in October compared to the recent peak of 13,6% seen in August. We are hopeful that this is the start of a consistent downward trend.”

Monetary policy remained focused on achieving price stability while taking fully into account the changed global situation, he said.

Consumer spending is cooling sharply as households struggle to cope with high rates, and the impact on economic growth has been exacerbated by a global slowdown.

Retail sales contracted for five months to September and new vehicles sales have been in decline for almost two years.

Official data this week showed economic growth slipping to 0,2% in the third quarter, the lowest level in a decade.

Mboweni said consumption spending had also been influenced by falling house prices and equity markets.

However, he warned some upside risks remained, including still high near-term public inflation expectations and the impact on prices from the weaker rand.

It was hoped that expectations would respond quickly to the reversal in the inflation trend.

Mboweni said the rand’s depreciation of more than 30% against the dollar did not reflect economic fundamentals, adding that the move was in line with other emerging economies.

While the deficit on the current account remained high, some pressure from imports would be taken away by slower growth, lower oil prices and the weaker currency.

But the portfolio flows that help finance the shortfall would remain under pressure due to continued risk aversion.

Mboweni said the real economy would feel the impact of the global crisis, although a recession should be avoided.

”The unfavourable global economic growth and commodity price developments suggest that while South Africa has managed to escape any untoward impact on its banking system, the real economy will not be immune to global developments,” he said.

”Despite an inevitable slowdown in GDP growth, we do not expect a recession at this stage. Nevertheless, a significant slowdown is something that we have to take cognisance of.”

Mboweni also repeated the resolutions of the recent G20 summit of heads-of-state that called for action to take the global slowdown and to strengthen the financial sector, including recognising the importance of monetary policy support, when appropriate to domestic conditions. – Reuters

We make it make sense

If this story helped you navigate your world, subscribe to the M&G today for just R30 for the first three months

Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Related stories

WELCOME TO YOUR M&G

Already a subscriber? Sign in here

Advertising

Latest stories

Seventeen people found dead in East London nightclub

At least 17 young people were found dead at a nightclub in a township in the southern city of East London on Sunday, police said

Gauteng ANC produces solid financials, feather in treasurer Parks Tau’s...

The provincial administration has, however, struggled to pay staff salaries

Zandile Tshabalala exhibits for the first time in SA with...

Pandering to the art world is no longer a prerequisite for success. Zandile Tshabalala has proved this in the last two years by exhibiting abroad before coming home

Rwanda refugees fear extradition from Mozambique

Mozambique and Rwanda’s new deal comes after 19 people ‘agreed’ to return home
Advertising

press releases

Loading latest Press Releases…
×