Speaking after the release of consumer price index (CPI) figures by Statistics South Africa, Mr Langenhoven said that fiscal policy was either contributing to inflation or, at worse, neutral in containing it, while monetary policy was clearly trying to hold the fort. However, the institutional or administrative leverage over price levels was contributing to inflationary pressures due to the wide impact of electricity and fuel price increases on general inflationary pressures in the economy.
Mr Langenhoven said today’s CPI numbers were a confirmation of the South African Reserve Bank’s motivation to increase interest rates recently. He said the conflicting signals for the optimum policy response with low economic growth, rising inflation, a potential fiscal deficit as well as the precarious shortfall on the balance of payments were not making the options any easier.
“The June figure of 6,6% is high, and may fuel expectations of more to come. This is the key problem facing the Governor of the Reserve Bank – managing inflationary expectations with interest rate increases without stunting domestic growth, all the while keeping an eye on what other central banks are doing. She is, in a sense, trying to engineer a soft take-off of growth rather than a soft landing,” Mr Langenhoven said.
He added that the next producer price inflation numbers will indicate whether or not cost pressures are sustained. He said that the two biggest risks contributing to upward pressure on costs would be the exchange rate weakening (mainly driven by domestic uncertainties) and continued oil price increases driven by events in oil- producing countries.
“We all hope that, on balance, these factors will contribute to a positive outcome of the already-precarious choices the country needs to make, and not worsen it,” Mr Langenhoven said.