SA’s Mboweni warns of inflation

JOHANNESBURG – South Africa’s structural imbalances, including a gaping current account deficit and strong credit demand, need to be tackled to curb inflation pressures, central bank chief Tito Mboweni said on Tuesday.

“Clearly there is something in the equation that says some of these imbalances need to be tackled by somebody, somewhere,” Mboweni told a business dinner. The central bank has raised its key repo rate by a full percentage point since June to curb rising inflation, and its monetary policy committee is widely expected to hike rates again next week.Mboweni has in the past flagged as threats to the inflation outlook robust consumer spending, fuelled largely by credit, and household debt at a record 70 per cent of disposable income in the second quarter.He has also warned a large shortfall in the current account of more than six per cent of gross domestic product is a threat to the rand currency, inflation and interest rates.South Africa’s rand slumped about 1,7 per cent to 7,8880/US$ – a new three-and-a-quarter year low – earlier on Tuesday, extending losses against the greenback to 20 per cent this year.The currency has been sliding since May amid concerns about the current account deficit, emerging market jitters and falling commodity prices.Mboweni said that while inflation remained within the bank’s three per cent to six per cent target range, it was shifting toward the upper end of the band and needed to be monitored.”(Inflation) remains within the inflation target but with an upward bias …the last number published for CPIX was five per cent and that should be something that we should watch very carefully,” he said.The CPIX inflation index, which strips out mortgage costs and is targeted for monetary policy, ticked up year-on-year in August and the bank has forecast it to breach six per cent in the first half of 2007.Factory gate prices, which filter through to consumer prices, soared to 9,2 per cent in the year to August – a 44-month high – from 8,1 per cent in July.”On the inflationary side, we might be more concerned about the impact the (high) oil prices might be having (and) a slight pick up in unit labour costs,” Mboweni said.”There is also the balance of payments imbalances that, over a period of time, might also become inflationary if they are not kept in check,” he said, adding that the deficit continued to be financed by strong portfolio inflows.High international oil prices have pushed South African petrol pump prices sharply higher, while non-farm labour costs rose by 7,6 per cent in the first quarter of 2006, the fastest rise in two years.But Mboweni said South Africa’s economic growth remained robust at 4,9 per cent.”Growth remains impressive at around five per cent, which might be slightly above trend …all in all I think that the South African economy is on a solid footing,” he said.Nampa-ReutersThe central bank has raised its key repo rate by a full percentage point since June to curb rising inflation, and its monetary policy committee is widely expected to hike rates again next week.Mboweni has in the past flagged as threats to the inflation outlook robust consumer spending, fuelled largely by credit, and household debt at a record 70 per cent of disposable income in the second quarter.He has also warned a large shortfall in the current account of more than six per cent of gross domestic product is a threat to the rand currency, inflation and interest rates.South Africa’s rand slumped about 1,7 per cent to 7,8880/US$ – a new three-and-a-quarter year low – earlier on Tuesday, extending losses against the greenback to 20 per cent this year.The currency has been sliding since May amid concerns about the current account deficit, emerging market jitters and falling commodity prices.Mboweni said that while inflation remained within the bank’s three per cent to six per cent target range, it was shifting toward the upper end of the band and needed to be monitored.”(Inflation) remains within the inflation target but with an upward bias …the last number published for CPIX was five per cent and that should be something that we should watch very carefully,” he said.The CPIX inflation index, which strips out mortgage costs and is targeted for monetary policy, ticked up year-on-year in August and the bank has forecast it to breach six per cent in the first half of 2007.Factory gate prices, which filter through to consumer prices, soared to 9,2 per cent in the year to August – a 44-month high – from 8,1 per cent in July.”On the inflationary side, we might be more concerned about the impact the (high) oil prices might be having (and) a slight pick up in unit labour costs,” Mboweni said.”There is also the balance of payments imbalances that, over a period of time, might also become inflationary if they are not kept in check,” he said, adding that the deficit continued to be financed by strong portfolio inflows.High international oil prices have pushed South African petrol pump prices sharply higher, while non-farm labour costs rose by 7,6 per cent in the first quarter of 2006, the fastest rise in two years.But Mboweni said South Africa’s economic growth remained robust at 4,9 per cent.”Growth remains impressive at around five per cent, which might be slightly above trend …all in all I think that the South African economy is on a solid footing,” he said.Nampa-Reuters