Reserve Bank warns of higher food prices in 2012

24 Jul 2012

The Reserve Bank has warned that food prices could remain elevated during the remainder of this year due to cost-push pressures arising from higher transport costs‚ electricity and refrigeration costs‚ and wage increases‚ the Reserve Bank said in its annual economic report released on Monday, 23 July 2012.

Food price outcomes‚ the bank said in the report‚ were increasingly being complicated by volatile factors such as exchange rate fluctuations‚ adverse weather conditions and price movements on world commodity markets.

Food prices were seen remaining elevated despite the recent moderation in domestic consumer food price inflation.

Consumer food price inflation decelerated in the opening months of this year to 6.8% in May.

The moderation resulted mainly from lower rates of increase in the prices of bread and cereals‚ meat‚ oils and fats‚ fruit‚ and vegetables.

The report noted in particular the moderation in meat price inflation which represents the highest weight within the consumer food basket. This component decelerated from a high of 16.7% in December last year to 7.0% in May 2012.

The Reserve Bank has also raised concerned at the high unemployment rates. It said that only 448‚000 jobs had been regained from the one million jobs lost between the fourth quarter of 2008 and the third quarter of 2010.

It highlighted in particular the job losses within the country's key sectors of mining and manufacturing‚ which together account for a large number of formal sector jobs.

Employment growth in the mining sector decelerated notably from a year-on-year rate of 4.2% in the second quarter of last year‚ to 2.0% in the year to the first quarter of this year‚ the annual report said.

Lower commodity prices‚ widespread industrial action and safety-related work stoppages since the middle of last year have plagued the sector.

Uncertainty surrounding mine nationalisation debate also negatively affected the sector‚ according to the Reserve Bank's report.

"However‚ the uncertainty has subsided somewhat‚ as government indicated that instead of mining nationalisation‚ changes to mining taxation would be considered‚" the bank said.

The annual report noted that although employment in the manufacturing sector increased marginally at annualised rates of 1.6% and 0.4% in the fourth quarter of last year and first quarter of this year respectively‚ employment growth in the sector remained very hesitant.

"The manufacturing sector remains susceptible to renewed weakness in the global economy‚ particularly in the euro area‚ through possible declines in exports‚" it said.

Public-sector employment is reported to have increased in recent years as government tried to mitigate job losses in other sectors.

According to the annual report‚ public-sector employment growth accelerated to 4.6% last year‚ the highest rate of growth since 1975.

Source: I-Net Bridge

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