Johannesburg, 18 July 2024:
The Governor of the South African Reserve Bank, Lesetja Kganyago, has indicated today that inflation in most economies has yet to stabilize in line with inflation targets.
Consumer price inflation is 3% in the United States, and 2.5% in the Euro area, and are still above those economies’ 2% inflation target range. He believes that the battle against inflation is not yet won, and cites this as the reason, global interest rates have remained elevated. While interest rates were lowered in Canada, Switzerland and the Euro area, they remained unchanged in the United States, the United Kingdom, and Japan. Among emerging markets however, some countries have lowered inflation, particularly in Latin America.
The Governor said that, while there had been rate cuts in some countries, it remained a concern for central banks, that lower inflation outcomes have not always been sustained.
Key Take-Aways:
- South African economic performance in the first half of the year was disappointing.
- The economy contracted slightly in the first quarter, by 0.1%, and recent data, including last week’s mining and manufacturing numbers, have caused the second quarter growth to be dropped to 0.6%.
- Inflation for May, was 5.2%, unchanged from April
- Headline consumer price inflation projection for 2024 is now at 4.9%, compared to 5.1% at the previous meeting.
- Over the medium term, inflation is expected to stabilise at 4.5%
- The outlook for the Rand (ZAR) is forecast at R18.35 to the US dollar
- For inflation expectations, the latest survey results show average expectations at 5% next year and 4.9% two years ahead.
- The MPC decided to keep the repo rate unchanged at 8.25%.
Factors that remain a concern in terms of inflation are:
- Ongoing electricity and other administrative costs inflation
- Services price inflation that remains uncomfortably above the mid-point inflation target.
The forecast continues to see rates easing into more neutral territory by next year. Decisions of the MPC will, according to the MPC continue to be data dependent, and sensitive to the balance of risks to the outlook.
The Committee reiterated that additional measures that would improve economic conditions would need to be implemented including reaching a prudent public debt level, improving the functioning of network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains.