Sarb sounds inflation warning

Johannesburg - Labour unrest‚ credit rating downgrades‚ a widening current account‚ coupled with a lagged effect of higher food prices and higher wage settlements do not bode well for inflation going forward‚ Reserve Bank deputy governor Daniel Mminele warned at an event on Wednesday night.

These were the same sentiments expressed by Bank Governor Gill Marcus at a National Union of Metalworkers of SA conference earlier on Wednesday.

Inflation has been rising on elevated food and fuel costs‚ with more upward pressure expected when new weights on the consumer price index (CPI) basket become effective next year.

Mminele told delegates that the Bank's own estimates indicated some upward pressure on both headline and core prices to the magnitude of around 0.2% on headline CPI.

“However‚ I should caution that these estimates are subject to the final set of price-updated weights which will only be published in January 2013‚ and as such‚ are subject to change‚” he said.

Mminele noted that alongside a less favourable outlook for inflation‚ the domestic growth outlook had deteriorated on both US and eurozone developments‚ and labour market instability.

“Such actions … not only amplify wage pressures‚ but hurt output growth and export volumes‚ raise the prospects for even higher unemployment and aggravate the widening in the current account deficit‚” he said.

The strikes in the mining and transport sectors in the third quarter dented the pace of economic growth‚ which fell to a growth of 1.2% from 3.4% in the second quarter. The strikes are also expected to have negatively impacted on growth in the fourth quarter.

“The negative impacts of the strike action on growth have not fully fed through and we are likely to see further weakness in the quarter ahead‚” Mminele said.

The Reserve Bank lowered its growth forecast to 2.5% for this year‚ improving to 3.6% next year‚ cautioning that risks were tilted to the downside.

Mminele noted that the combination of low global growth‚ domestic challenges‚ rising wage settlements‚ a weaker rand and higher current account deficit made “for a very difficult combination of factors” when monetary policy decisions were being made.