S. Africa Growth Limited by Price Pressures: Central BankAndres R. Martinez
The rand’s weakness, together with above-inflation increases for wages and administered prices, is limiting economic growth, the South African Reserve Bank said.
“Factors that have and could possibly add to domestic inflationary pressure include the depreciation in the exchange value of the rand, high administered price inflation and wage increases in excess of inflation,” the bank said in its Annual Economic Report released in Johannesburg today.
“The continued high level of underlying administered price inflation adds to cost pressures in the economy, thereby constraining economic expansion.”
Policy makers held the benchmark repurchase rate at 5 percent for a sixth meeting last week as inflation remains close to the top of its 3 percent to 6 percent target. While the bank won’t preemptively raise borrowing costs to curb inflation, price increases are preventing it from stimulating an economy expanding at the slowest pace since 2009, Governor Gill Marcus said last week.
Inflation probably quickened to 5.8 percent in June from 5.6 percent in May as the weaker rand drove the cost of food and fuel higher, according to the median estimate of 19 economists in a Bloomberg survey. Statistics South Africa releases the data tomorrow.
The rand has dropped 14 percent against the dollar this year, the most of 16 major currencies tracked by Bloomberg. South Africa’s energy regulator approved an 8 percent increase in electricity prices annually for the next five years, half of what state-owned utility Eskom Holdings SOC Ltd. requested.