SA’s inflation drivers

Deputy SA Reserve Bank (Sarb) Governor Daniel Mminele said yesterday South Africa’s high inflation rate was driven by a rigid wage and price setting process, lack of competition and expectations from private economic agents.

In recent years, South Africa’s consumer price inflation has regularly exceeded the median levels for both the world and large emerging markets. However, there was a time, not so long ago, when it was much higher.

Speaking at the S&P Dow Jones Indices SA Seminar in Pretoria, Mminele said since inflation targeting by Sarb began, annual consumer price inflation has averaged 5.7%, compared to 10% in the ’90s and as high as 15% in the ’80s.

“The rand’s long-term depreciating trend, caused by positive inflation differentials with trading partners, as well as a structural current account imbalance, has fuelled such expectations,” Mminele said.

After remaining stuck above 5% for four whole years to February 2017, it has now been in the 4.0-4.5% range for over a year.

Mminele said the contributing factors in the inflation slowdown were the decline in food inflation that began in early 2017 as crops recovered from a drought-induced plunge a year earlier, the impact of the one percentage point value-added tax and slowing housing costs. – ANA