Statement of the Monetary Policy Committee - 10 April

Issued by Mr T T Mboweni, Governor of the South African Reserve Bank

Introduction
The South African economy continues to respond to the less accommodative monetary policy stance. Domestic expenditure is responding to our current policy settings. Various high frequency and survey data point to the economy growing at a rate below potential, but nevertheless underpinned to some extent by strong investment expenditure by the private sector and public corporations.

The inflation outlook is being influenced by a series of supply-side shocks emanating from the international oil and food prices which are posing challenges for inflation-targeting countries in general. Domestically, there is evidence of generalised price pressures and the prospect of further substantial electricity price increases will also delay the return to within the inflation target range. In the light of these developments, inflation expectations have deteriorated.

Recent developments in inflation
CPIX inflation has maintained its upward trend, reaching 9,4 per cent in February 2008. Petrol and food prices were again the main drivers of inflation and increased at year-on-year rates of 29,5 per cent and 14,3 per cent respectively. If food and energy prices were excluded, CPIX inflation would have measured 5,6 per cent. Further impetus to inflation came from the change in methodology for calculating clothing and footwear prices. Whereas clothing and footwear prices were previously shown to have declined persistently since October 2003, these prices increased at year-on-year rates of 7,9 per cent and 8,4 per cent in January and February 2008 respectively. Year-on-year producer price inflation measured 11,3 per cent in February compared to 10,4 per cent in January. Agricultural food prices increased at a year-on-year rate of 23,5 per cent in February, while manufactured food prices increased by 20,9 per cent.


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