CityPress - - Business -

he SA Re­serve Bank’s man­date is to achieve and main­tain price sta­bil­ity. This is be­cause price sta­bil­ity is a nec­es­sary con­di­tion for the bal­anced and sus­tain­able eco­nomic growth that South Africa re­quires. To achieve price sta­bil­ity, the Re­serve Bank has an in­fla­tion tar­get of be­tween 3% and 6%. The ad­just­ment of in­ter­est rates is the main pol­icy tool used by the bank to en­sure that in­fla­tion stays within the stated tar­get.

In­fla­tion is a sus­tained in­crease in the gen­eral price level in an econ­omy over time.

There are two ma­jor causes of in­fla­tion – de­mand­pull in­fla­tion and cost-push in­fla­tion.

De­mand-pull in­fla­tion oc­curs when there is too much money chas­ing too few goods. In other words, when de­mand for goods and ser­vices is greater than the sup­ply, lead­ing to an in­crease in prices.

Cost-push in­fla­tion refers to an in­crease in the gen­eral price level that is trig­gered by a large in­crease in an im­por­tant in­put cost such as oil. A large in­crease in the oil price raises the costs of pro­duc­tion, to which pro­duc­ers can re­spond by pass­ing these higher costs on to con­sumers, thereby caus­ing in­fla­tion.

Last year, South Africa’s con­sumer price in­fla­tion grew by 6.1%.

In­fla­tion slowed in the sec­ond half of last year and slowed even fur­ther this year, av­er­ag­ing only 4.1% dur­ing the first quar­ter of this year. This was be­cause of the sig­nif­i­cant de­cline in the oil price, which led to a de­cline in the do­mes­tic petrol price. The price of petrol in Gaut­eng peaked at R14.39 in April last year but dropped to R10.31 in Fe­bru­ary.

How­ever, the petrol price has in­creased by R3.46 since Fe­bru­ary be­cause of a com­bi­na­tion of a higher oil price, a weaker rand and higher fuel levies in­tro­duced in the Fe­bru­ary bud­get speech.

Due to a com­bi­na­tion of the higher petrol price, high in­creases in ad­min­is­tered prices and high­erthan-ex­pected fi­nan­cial ser­vices in­fla­tion, over­all con­sumer in­fla­tion has been ac­cel­er­at­ing in re­cent months. Af­ter bot­tom­ing out at 3.9% in Fe­bru­ary, con­sumer in­fla­tion in­creased to 4.6% in May.

We ex­pect the re­cent ac­cel­er­a­tion in in­fla­tion to con­tinue in the next few months, and for in­fla­tion to peak at close to 7% dur­ing the first quar­ter of next

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