Consumers responding to rates

"Growth in real final consumption expenditure by households lost further momentum in the second quarter of 2008, led by a sharp decline in the demand for durable goods," said the SARB.

In addition, it noted that real outlays on semi-durable and non-durable goods and services moderated over the period.

It noted that consumption had also responded to the higher cost of servicing household debt.

"This simultaneously contributed to greater caution among households in their use of credit," said the SARB.

It noted that in the second quarter, a reduction in the ratio of household debt to disposable income was registered, signalling the end of a four-year upswing in the household sector's debt ratio as households slowed their pace of debt accumulation.

The SARB also pointed out that tighter credit conditions had started to manifest in slower growth in loans and advances extended by banks.

However, it did point out that inflation gained further momentum in the first half of 2008, driven by energy and food.

"Of concern was not only that CPIX inflation rose further above the inflation target range, but also that indicators of second-round inflationary forces, such as wage settlements and the rate of increase in CPIX excluding food and petrol, continued to accelerate while significant increases in electricity prices were also in the pipeline," said the SARB.

It said this deterioration had led to an increase in rates in June, but with the economy seeming to respond to the tighter monetary conditions and given signs of moderation in some of the largely exogenous drivers, it did not raise rates further in August.

- I-Net Bridge