The South African Reserve Bank's Monetary Policy Review (MPR), released on Tuesday highlighted that price increases in food and oil, coupled with a fluctuating exchange rate has dominated the economy in 2008.
The inflation rate for the overall food price component within the Consumer Price Index excluding interest on mortgages (CPIX) increased from 15.6 percent in March to 19.2 percent in August, before slowing to 17.9 percent in September 2008.
The prices of grain products and of fats and oils rose particularly strongly this year, with the price of grain products rising 13.1 percent between March and September 2008.
The price fluctuations of Brent Crude Oil have also played havoc on international markets skyrocketing from an average of $77 per barrel in September 2007 to $146 per barrel in July 2008.
However, by late October 2008 the price of oil plunged by 60 percent to below $59 per barrel due to increasing concerns about slower global economic growth.
The turmoil on global markets ignited by the sub-prime mortgage crisis in the United States earlier this year has led to the closing of major financial institutions, the repossession of assets, and the loss of public confidence in banks to lend responsibly.
Inflation in developed and emerging economies has jumped to record highs with central banks grudgingly cutting interest rates or leaving them unchanged as global economic growth slowed substantially.
Economic growth in the some of the world's most advanced economies in Europe, Asia and the United States have slowed so substantially that the word "economic recession" is balancing on the tips of economists tongues.
The International Monetary Fund (IMF) warned that the US economy was projected to contract moderately during the second half of 2008 as the market value of the US housing stock was rapidly reduced by a continued decline in US housing prices.
Inflation in the US is projected to increase from 2.9 percent in 2007 to 4.2 percent in 2008 said the South African Reserve Bank.
"After advancing strongly in the first quarter of 2008, momentum in Japan's economy quickly waned, and real Gross Domestic Product [GDP] contracted at an annualised rate of 3 percent in the second quarter
"The IMF forecasts real GDP growth in Japan of 0.7 percent in 2008 compared with the 2.1 percent recorded in 2007," read the MPR.
The worst financial crisis the world has experienced since the Great Depression of the early 1930s has hit emerging economies harder than developed economies in some sectors such as commodities and currency exchange, in particular.
South Africa has certainly not been immune to market turmoil and the inflation for September 2008 eased slightly to 13 percent from 13.6 percent in August 2008.
The Reserve Bank indicated that is expected inflation to peak at an average rate of around 13 percent in the third quarter of 2008.
Considering, hypothetically, the peak has now been reached, the MPR expects inflation to decline significantly in the first quarter of 2009, partly as a result of the reweighting and rebasing of the Consumer Price Index (CPI).
Economists predict that the reweighting of the consumer basket early next year will lead to a drop of between 1 or 2 percent in inflation.
"Inflation is then expected to decline gradually, and to fall below the upper end of the inflation target range [of 3-6 percent] in the second quarter of 2010. Inflation is expected to average about 7.2 percent in 2009 and 5.9 percent in 2010," said the Reserve Bank. - BuaNews