Thursday, March 27, 2008

Food, petrol prices fuel inflation

The SA Reserve Bank's quarterly bulletin, released on Wednesday, highlights the increases in the prices of food and petroleum as important drivers of inflation. "The bank has already tightened the monetary policy stance and will remain vigilant with respect to the possible second-round inflationary effects which the price impulses originating from these drivers may initiate," the SARB's governor, Tito Mboweni, said at the release of the bulletin.

The resolve of the bank to bring inflation back within target over time should not be underestimated, he said.

Following considerable progress made with the containment of price inflation between 2002 and 2004, annual CPIX inflation accelerated from 3.9 percent in 2005 to 4.6 percent in 2006 and 6.5 percent in 2007, while headline inflation picked up from 1.4 percent in 2004 to 7.1 percent in 2007.

After forty-three months in the inflation target range, year-on-year CPIX inflation breached the upper band of the inflation target range in April 2007, amounting to 6.3 percent. Subsequently, CPIX inflation accelerated noticeably to a year-on-year rate of 8.8 percent in January 2008.

"This acceleration in inflation resulted primarily from higher food prices and intermittent steep increases in the international price of crude oil, leading to substantially higher domestic fuel prices.

"Various capacity constraints within a buoyant economy probably also imparted some momentum to the inflation process, the bulletin said.

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