Signs of a consumer spend slowdown are encouraging, says analyst

Evan Pickworth

Evan Pickworth

The Reserve Bank said in its latest Monetary Policy Review yesterday that the breach of the 3percent to 6percent inflation target is of "significant concern" to the Monetary Policy Committee.

Inflation in South Africa breached the upper end of the target range in April 2007 - for the first time since August 2003. It has been above the target for six months.

"The pressures which were primarily responsible for the breach in the inflation target range were largely external, emanating from oil and food price shocks, and have posed a challenge to many central banks around the world," said the Bank.

"However, given the potential impact on inflation expectations, more generalised price-setting behaviour and monetary policy credibility, the breach of the inflation target is of significant concern to the Monetary Policy Committee of the Bank," it said.

"The most important challenge for monetary policy makers is to ensure that inflation is brought back to within the target range and that inflation expectations remain anchored in the range," said the Bank.

Citigroup interest rate analyst Leon Myburgh said he expected oil and food prices to be taken to heart by the Monetary Policy Committee.

He said although it had taken a while to filter through, there were indications of a slowdown in consumer spend noted in the second quarter of this year, which was encouraging. "It will be interesting to see the relationship between the two cost factor of oil and food prices versus the very strong solid signs of a slowdown on consumer demand."

The Monetary Policy Committee is due to meet again next month and some analysts believe it will hike interest rates by a further 50 basis points. - I-Net Bridge with Xolile Bhengu