South Africa’s inflation picture is “somewhat benign” compared with other emerging markets and the central bank stands ready to step in should rising food and fuel costs spread to other prices, Deputy Governor Daniel Mminele said.
The South African Reserve Bank kept its key interest rate at 5.5 percent on May 12 because of “the large influence of exogenous factors on the current inflation rate,” Mminele said in a speech to the Association of Corporate Treasurers of South Africa in Johannesburg today.
If high oil, food and electricity costs “build up to more generalized price inflation,” the central bank “will not hesitate to take timeous action to ensure that second-round effects will not take hold,” Mminele said, echoing a central bank report published on May 24.
The central bank forecast this month that inflation in Africa’s largest economy will breach the 3 percent to 6 percent target in the first quarter of 2012, peaking at 6.3 percent, before returning into the band in the second quarter. Inflation was 4.2 percent in April. Other emerging markets have struggled to reduce their inflation rate, with China at 5.3 percent, Brazil at 6.5 percent and India at 8.8 percent.
The rand pared early gains against the dollar and was trading 0.4 percent up at 6.9514 at 10:52 a.m. in Johannesburg trading.
The Bureau for Economic Research, which is based at the University of Stellenbosch near Cape Town, today said the central bank is likely to raise its key rate by 50 basis points in September rather than November, as previously predicted, because of rising inflation. The bank will increase the interest rate by 2 percentage points next year, the BER said.
The BER increased its inflation forecast to 5 percent this year, versus a previous estimate of 4.7, while it cut it economic growth estimate to 3.7 percent from 3.8 percent, according to a report issued in Johannesburg.
“We remain concerned about underlying inflationary pressures that may start to build up next year,” BER analyst Hugo Pienaar told reporters in Johannesburg today. “You can’t wait until you start seeing these signs to act. It’s better to be more aggressive and preempt these signs before they appear.”