Food, petrol prices cause for inflation hike

"The bank has already tightened the monetary policy stance and will remain vigilant with respect to the possible second-round inflationary effects which the price impulses originating from these drivers may initiate," said SARB's governor, Tito Mboweni at the release of the report.

According to the bulletin, household consumption growth slowed further in the fourth quarter of 2007.

Accelerating inflation

Simultaneously, real fixed capital information continued to rise at an annualised rate of more than 14% in the fourth quarter.

Following considerable progress made with the containment of price inflation between 2002 and 2004, annual CPIX inflation accelerated from 3.9% in 2005 to 4.6% in 2006 and 6.5% in 2007.

After 43 months in the inflation target range, year-on-year CPIX inflation breached the upper band of the inflation target range in April 2007, amounting to 6.3%.

Subsequently, CPIX inflation accelerated noticeably to a year-on-year rate of 8.8% in January 2008. This is the highest since early 2003.

"This acceleration in inflation resulted primarily from higher food prices and intermittent steep increases in the international price of crude oil, leading to substantially higher domestic fuel prices.

"Various capacity constraints within a buoyant economy probably also imparted some momentum to the inflation process,” the bulletin said.

No need to panic

Mboweni said the economic growth will slow in 2008 but there is no cause for alarm, and the local financial system is performing well despite global credit problems.

The country recorded a current-account deficit of 7.5% of the Growth Domestic Product (GDP) in the fourth quarter of 2007 and 7.3% for the whole year.

"South Africa's foreign debt is low, its private banking sector owed more than R225 billion in foreign exchange at the end of 2007," the governor said.

Mboweni added that the challenges from problems in the United State subprime mortgage market were "immense", but the local financial system was still sound and liquidity was adequate.

He assured that the SARB was closely monitoring international and domestic developments as they unfold and consults with relevant stakeholders is ready to take appropriate steps to ensure stability and smooth functioning of the financial markets.

Article published courtesy of BuaNews