‘Low inflation good for growth’

JOHANNESBURG – Sustainable economic growth is unlikely in an environment of high inflation, South African Finance Minister Trevor Manuel said yesterday, adding the government will stick to prudent economic policies.

South Africa’s central bank is widely expected to raise its repo rate by half a percentage point to nine per cent later yesterday as it tackles rising inflation, adding to three similar rate hikes since June. The increases have been criticised by the country’s trade unions, which argue the focus should be on lifting economic growth rather than containing prices.”It is important that we recognise that inflation …(doesn’t) stimulate economic growth,” Manuel said on 702 radio.”I certainly don’t know of any country that has been able to grow sustainably in an environment of high inflation.”He said the country needed to continue its policy of sound macroeconomic management while working to stimulate small business and cut poverty.Africa’s biggest economy grew by 4,7 per cent in the third quarter of 2006 despite higher rates, and by 5,1 per cent for 2005 – its fastest yearly rate in more than two decades.The targeted CPIX inflation measure was at five per cent in the year to October and is forecast to test the upper end of the central bank’s 3-6 per cent range in 2007.Manuel added that South African interest rates remained at historically low levels, which helped spur economic growth.”As a result of better economic performance …I don’t know what the (central bank’s) monetary policy committee will come up with this afternoon, but interest rates in South Africa are at a 23-year low,” he said.Referring to another year of record vehicle sales in 2006, he said: “So clearly within the living and working experience of many South Africans there is a sense that they can afford it.”This was also not merely due to record high credit extension but reflected an overall improvement in the wealth of South Africans, Manuel said.Total vehicle sales for the 11 months of the year are running 15 per cent up on the same period last year, despite a dip in year-on-year sales growth over the past two months as higher interest rates bite.But credit growth continues to rise, reaching an all-time high of 27,48 per cent in October, helping fuel retail sales and lift household debt to nearly 70 per cent of disposable income.”People can afford it and it is a result of a general improvement in the economy, the wealth effect and low interest rates, I think, and easier credit,” Manuel said.Nampa-ReutersThe increases have been criticised by the country’s trade unions, which argue the focus should be on lifting economic growth rather than containing prices.”It is important that we recognise that inflation …(doesn’t) stimulate economic growth,” Manuel said on 702 radio.”I certainly don’t know of any country that has been able to grow sustainably in an environment of high inflation.”He said the country needed to continue its policy of sound macroeconomic management while working to stimulate small business and cut poverty.Africa’s biggest economy grew by 4,7 per cent in the third quarter of 2006 despite higher rates, and by 5,1 per cent for 2005 – its fastest yearly rate in more than two decades.The targeted CPIX inflation measure was at five per cent in the year to October and is forecast to test the upper end of the central bank’s 3-6 per cent range in 2007.Manuel added that South African interest rates remained at historically low levels, which helped spur economic growth.”As a result of better economic performance …I don’t know what the (central bank’s) monetary policy committee will come up with this afternoon, but interest rates in South Africa are at a 23-year low,” he said.Referring to another year of record vehicle sales in 2006, he said: “So clearly within the living and working experience of many South Africans there is a sense that they can afford it.”This was also not merely due to record high credit extension but reflected an overall improvement in the wealth of South Africans, Manuel said.Total vehicle sales for the 11 months of the year are running 15 per cent up on the same period last year, despite a dip in year-on-year sales growth over the past two months as higher interest rates bite.But credit growth continues to rise, reaching an all-time high of 27,48 per cent in October, helping fuel retail sales and lift household debt to nearly 70 per cent of disposable income.”People can afford it and it is a result of a general improvement in the economy, the wealth effect and low interest rates, I think, and easier credit,” Manuel said.Nampa-Reuters