Inflation outlook

PRETORIA – A weaker rand currency and rising international food and fuel prices continue to cloud the prospects for South African inflation, the central bank said yesterday.

Reserve Bank Governor Tito Mboweni added that the bank must remain vigilant on the wider impact of higher food and fuel costs and that the peak in CPIX would likely be higher than it previously forecast. “I hope the second round effects don’t continue to rise, thereby forcing the hand of monetary authorities to tighten (policy),” he said.However, “things may still improve” despite the problems with inflation.Although the lags on interest rates made it impossible to immediately bring inflation back to a target range, the resolve of the bank to bring CPIX back to the target over time “should not be underestimated”, Mboweni said.The bank said in its March quarterly bulletin that concerns about the prospects for economic growth due to electricity shortages weighed on the rand in early 2008, helping it weaken nearly 14 per cent against a basket of currencies by the end of February.”Alongside rising international prices of petroleum and food, this continued to cloud inflation prospects.”Nampa-Reuters”I hope the second round effects don’t continue to rise, thereby forcing the hand of monetary authorities to tighten (policy),” he said.However, “things may still improve” despite the problems with inflation.Although the lags on interest rates made it impossible to immediately bring inflation back to a target range, the resolve of the bank to bring CPIX back to the target over time “should not be underestimated”, Mboweni said. The bank said in its March quarterly bulletin that concerns about the prospects for economic growth due to electricity shortages weighed on the rand in early 2008, helping it weaken nearly 14 per cent against a basket of currencies by the end of February.”Alongside rising international prices of petroleum and food, this continued to cloud inflation prospects.”Nampa-Reuters