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Food, petrol prices drive inflation

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Food, petrol prices drive inflation

by Luyanda Makapela
19 Jun 2008
BuaNews Online
BuaNews Online

The price increases of food and energy are the main drivers of inflation, according to the South African Reserve Bank's [SARB] quarterly bulletin released on Thursday.

The SARB bulletin, which was released on Thursday, noted that inflationary pressures continued to rise throughout year 2007 and the first four months of 2008.

Soaring food and petrol prices, on account of further surges in the price of crude oil, and domestic supply constraints in certain sectors, kept inflationary pressures high, the bulletin reported.

Among the main expenditure components, only real financial consumption expenditure by households showed a slower growth in the first quarter of 2008.

This reflected higher debt financing cost and a slowdown in households' real disposable income due to higher inflation.

According to the bulletin, both producer and consumer prices maintained double-digit rates of inflation in April 2008.

In the first half of 2008, the bulletin further stated, policy-makers in many countries faced the challenges of weaker growth and intensifying inflationary pressures.

Money policy reactions were not uniform, ranging from aggressive lowering of interest rates in countries such as the United States, to the tightening of policy in several other countries.

According to the bulletin, after approximately four years of the above-trend economic expansion in South Africa, growth in real gross domestic product (GDP) slowed abruptly to an annualised rate of only 2.1 percent in the first quarter of 2008.

In contrast to the slowdown in the GDP, however, the bulletin states that the annualised growth in aggregate real gross domestic expenditure accelerated considerably in the first quarter of 2008 from virtually no growth in the previous quarter.

This increase could be attributed to a rebound in inventory accumulation and stronger growth in final consumption expenditure by government and in fixed capital formation.

With regards to Consumer Price Index (CPIX), service price inflation accelerated from a year on year rate of 4.6 percent in January 2007 to 6.5 percent in April 2008.

Housing costs, in particular, had an adverse effect on service price inflation while transport costs moderated over the period.

Higher rates of increase in CPIX service price inflation were persistent, led by increases in homeowners' costs, domestic workers' wages, education and dry clean service, the bulletin stated.

Companies listed on the Johannesburg Stock Exchange Limited (JSE) raised equity capital in the domestic and international primary share markets amounting to R29.3 billion in the first four months of 2008.

This was 37 percent less than the amount raised during the same period in 2007, possibly due to higher instability in global share markets and the subsequent re-pricing of risk.

During the first quarterly bulletin in March 2008, Reserve Bank Governor Tito Mboweni assured that SARB was closely monitoring international and domestic developments as they unfolded and was consulting with relevant stakeholders to take appropriate steps to ensure stability and smooth functioning of the financial markets. - BuaNews

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