Inflation likely 'to get worse'

HIGH food and fuel costs in South Africa have spilled over into second round inflationary effects that have to be tackled.

HIGH food and fuel costs in South Africa have spilled over into second round inflationary effects that have to be tackled.

Reserve Bank Governor Tito Mboweni yesterday also warned in an interview with CNBC Africa that an excessive increase in electricity prices would have serious consequences for inflation.

The targeted CPIX inflation gauge jumped to a five-year high of 10,1percent in March, raising speculation that interest rates may have to rise again.

The data came out last week. Earlier this month the Bank lifted its repo rate by 50 basis points to 11,5percent, adding to eight half percentage point increases since June 2006.

Mboweni said the Bank's central forecasts had showed inflation getting worse before it got better.

"So, it was very important for the monetary policy committee to have to tighten the monetary conditions in order to ensure that going forward inflation does come down," he said, referring to the April 10 rates decision.

Mboweni said high global food and oil prices had been the spark for higher inflation, but pressures were now more widespread.

"Food and oil have been the original sins ... (but) the impact of the increases in the prices of food and oil have now spilled over into the other categories of the inflation basket, second round effects.

"The central bank has to try to ensure that these second round effects don't get out of control."

Consumer demand needed to be dampened further and inflation expectations had to be contained, he said. - Reuters

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