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