Inflation to come down - SA Reserve Bank

Friday, May 15, 2009

Pretoria - South Africa's inflation will come down as growth prospects fluctuate, the South African Reserve Bank has reported in its Monetary Policy Review (MPR) for May.

The review revealed that South Africa, like many other countries, has been negatively impacted by the economic turmoil in financial markets.

"The global and domestic economic slowdown has had a significant moderating impact on the inflation outlook," read the review released on Thursday afternoon.

However, it's not all smooth sailing as what the bank described as "larger than anticipated" electricity price increase as well as high wage settlements could threaten inflation.

In March consumer inflation stood at 8.5 percent. According to the review inflation is expected to come down to 6.2 percent in the third quarter of 2009.

"Thereafter inflation is expected to increase marginally to 6.4 percent in the first quarter of 2010 before resuming its downward trajectory to reach 5.4 percent by the end of the forecast period in the fourth quarter of 2010," said the Bank.

It added, however, that change in global markets made inflation forecasts subject to higher risk than usual.

The last MPR was released by the bank in November last year.

When coming to the outlook for domestic demand, there is expectation that growth will be disappointing. Real gross domestic expenditure declined at an annualised 3.9 percent rate in the final quarter of 2008.

"There's general expectation that domestic growth will be quite disappointing in the first two to third quarters of this year due to weaker domestic and international economic conditions before improving moderately in 2010 and 2011" said the MPR.

Growth in households' real disposable income is expected to remain subdued while recovery is expected later in the year.

The review also found that the exchange rate of the Rand has recovered from sharp depreciation that was experienced last October due to lower commodity prices.

"The strengthening of the value of the Rand during April 2009 was largely fuelled by improved investor sentiment around the world," read the review.