Inflation fight ‘not Bank’s job alone’

● The fight against inflation should not be left to the Reserve Bank alone, said deputy governor-designate Fundi Tshazibana, citing high prices for utilities such as water and electricity.

Water prices have risen far above the upper end of the central bank’s inflation target of 3-6%, though this can by explained by the impact of the drought, which placed further constraints on the economy. Municipal tariffs have been risen significantly, also above the upper band of the inflation target, while electricity prices continue to soar.

Elevated administered prices are why SA’s inflation remains about 4.5% and not near 2% despite a weak economy.

“Bringing prices down is not just an MPC (monetary policy committee) issue. I think not everyone understands why we keep talking about these structural factors. We’re saying you need reforms, structural reforms that lower the cost structure of the economy,” said Tshazibana, who is a member of the Bank’s MPC.

The Reserve Bank’s mandate involves price stability by keeping inflation low, which also protects the value of savings.

She was speaking on Friday after Bank governor Lesetja Kganyago announced a 25basis-point rate cut that lowered the repo rate to 6.5%. Some economists have criticised the move, saying the cut could have been deeper to ease the impact of price hikes on struggling consumers.

Raymond Parsons, professor of economics at the North-West University Business School, said a 50-basis-point cut would have had a greater economic impact, yet with small risk. Thursday’s decision only reversed the controversial hike in November.

But Tshazibana said that in its cautious decision-making the MPC’s conclusions are based on several scenarios and data from Stats SA. “If you don’t have full data available, sometimes it’s better to wait. Decisions can change from meeting to meeting.”

On pricing, she said structural reforms of telecommunications had occurred alongside technological improvement and resulted in lower prices. Rental costs and wage growth — other elements affecting the inflation basket — are down. In 2017, average wage costs increased about 7.2%. Over the past year they have averaged close to 4%, which was a big shift, Tshazibana said.

“If you can achieve [reforms], then the job of the central bank is much easier. We focus on anchoring expectations … It’s having this concept of joined-up government, of monetary policy playing one role and other policy departments playing their respective roles at the same time. All of these are complementary in bringing overall prices down.”

The central bank anticipates upside risks to inflation such as bailouts of SOEs that could add pressure on all borrowing rates. But a potential credit ratings downgrade is not one of the risks, she said.