Headline inflation is expected to fluctuate at the lower end of the 3 to 6% target range, the National Treasury said on Wednesday.
As Finance Minister Tito Mboweni tabled perhaps the most difficult Medium-Term Budget Policy Statement in years, due to the devastating effects of the COVID-19 pandemic, the National Treasury announced that goods and services inflation have broadly declined due to weak demand and falling oil prices.
“Inflation is forecast to fluctuate around the 4.5% midpoint over the medium term in line with moderating inflation expectations.
“Below-potential economic output and weak imported inflation are also expected to keep inflation contained.”
Retail, alcohol, tobacco and leisure sector decline due to low consumption
The National Treasury said household expenditure has evolved in line with lockdown restrictions, with high-contact, consumer-facing sectors (retail, leisure, alcohol and tobacco) experiencing a sharp drop due to COVID-19 containment measures.
“Conversely, higher spending on communication, housing and utilities is consistent with increased home-based work and leisure.
“Aggregate household consumption is expected to remain below pre-pandemic levels for some time. Consumption will be severely constrained by record job losses, steep declines in incomes and low confidence.”
The National Treasury said despite lower interest rates and inflation, demand for credit remains muted, implying that households expect prolonged economic weakness. – SAnews.gov.za
