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Johannesburg - Inflation pressures in South Africa are now
likely becoming more generalised, reflecting demand-side pressure rather than
only external factors, the central bank warned, seeming to signal an eventual
monetary tightening.
“In general, monetary policy can do little to combat the
impact or first round effects of inflation that is driven by exogenous shocks,”
South African Reserve Bank (Sarb) governor Gill Marcus said in a statement on
the bank’s website on Thursday.
"However, the most recent data seem to suggest that
inflation is becoming more generalised, and may reflect the emergence of demand
pressures. This is something that the bank will monitor very carefully,” she
said.
The central bank has kept interest rates unchanged at
30-year lows of 5.5%, after a cumulative 650 basis-point reduction in the two
years to November 2010.
“Alarm bells went off in my head because this is the first
time ever since the crisis that we’ve had the Sarb saying this sort of thing,”
said Razia Khan, head of Africa Research at Standard Chartered.
The bank has consistently said inflation pressures were of a
cost-push nature and it would not be appropriate to raise interest rates given
the lack of demand-side pressures.
“I am seeing this as significant because the language is
meaningfully different to what came before. That could be construed as the Sarb
potentially preparing the way for a tightening,” Khan said.
Speaking at a business dinner in Johannesburg, Marcus said
high inflation was hurting the poor who are unable to hedge themselves against
price increases.
Inflation for the very low expenditure group, which spends a
large part of their income of food and transport costs, was at 8.1% compared to
5.7% for the very high expenditure group.
CPI in target by year-end
Marcus also said the inflation rate should come back to
within the 3% - 6% target set by the central bank by the end of the year.
“Recent developments, including the below inflation tariff
increase granted to the ports, the reduction in the proposed e-toll tariffs and
the reduction in the electricity tariff increase granted to Eskom are
encouraging,” Marcus said.
South Africa's energy regulator announced on Friday it had
cut to 16% an electricity rates increase for power utility Eskom, from a
previously approved 25.9%.
The governor warned, however, that there were many
uncertainties, such as upside risks from international oil prices.
Inflation stood at 6.3% in January and the bank has
previously forecast it would stay above the target range until the first
quarter of 2013.
But analysts said this was only a slight moderation to the
central bank’s forecast and not as meaningful as its warning about demand
pressure on inflation.
The market is likely to keep a keen focus on the demand side
in inflation data due next week.
Nationalisation issue
Marcus said accommodative monetary policy was limited in its
ability to help growth and South Africa needed investment to boost its growth
potential.
Economic growth in Africa’s largest economy has largely been
driven by consumer spending, “which is clearly an undesirable and unsustainable
growth path”, the central banker said.
The finance ministry unveiled in its budget some R845bn in
infrastructure spending over the medium term, which could give momentum to the
country’s sluggish growth recovery since a 2009 recession.
The bank acknowledged a cloudy regulatory environment in the
mining sector which may be the hindrance to private sector investment, along
with lacking rail infrastructure needed to transport output.
President Jacob Zuma last month promised to
keep the sector “globally competitive”, seeming to knock down prospects of
nationalising mines regularly pushed by some groups in the ANC.
He pledged a R300bn, seven-year investment for state rail and
ports firm Transnet, which has in the past experienced logistical bottlenecks.
Marcus also said the central bank recognised that its price
stability mandate must be undertaken with a recognition of the possible impacts
on employment and growth.
Nearly a quarter of South Africa’s labour force is without
work and the government has said the economy needs to grow at around 7% to make
a meaningful dent in the jobless rate.
Growth in the last quarter of 2011 quickened to 3.2% driven
by consumer demand, and preliminary estimates put gross domestic product (GDP) growth at 3.1% in 2011
from 2.9% in 2010.
But growth is expected to slow in 2012, with recent soft data
signalling lower GDP for the first quarter.
The finance ministry has cut its growth forecast for the year to 2.7% from a previous projection of 3.4%, mainly reflecting the impact of a slowdown in Europe, a key trading partner that absorbs about 30% of South Africa’s exports.
