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Mboweni warns S Africa consumers to tighten belts

SOUTH Africa’s central bank Governor Tito Mboweni warned consumers on Wednesday to tighten their belts further as higher food and fuel prices fan out into wider inflation.

South Africa’s targeted CPIX inflation has surged through the top end of the bank’s 3 to 6% band and is expected to hit a five-year high of more than 9% year-on-year in February.
The acceleration is largely driven by food and fuel and has so far not reacted to a series of interest rate increases since June 2006.
Mboweni told parliament’s fin-ance committee there was evidence that prices pressures were not confined to food and energy.
“Taking out food and energy prices, we still see the trend is on the upside, meaning that we are experiencing some second-round effects arising out of food and energy,” he said. “So we have a very difficult time ahead of us. We have to tighten our belts.”
The comments may raise speculation that the central bank’s policy committee will resume raising interest rates at its April 9-10 meeting after leaving the repo rate at 11% in January.
It increased rates by 400 basis points between June 2006 and December last year.
Mboweni added that the economy was not in danger of being “overdosed” by higher interest rates, although there are signs that consumer spending is slowing, and he stressed the importance of anchoring inflation expectations on the low side.
“Is there a danger of killing the real economy? Well, if there is overdose of any medication it can kill a patient. I don’t think we are in the period of overdose now.”
Mboweni also said it was important for South Africa to continue with its policies of prudent fiscal and monetary policy to ensure international confidence in the economy.
“For as long as we have prudent macroeconomic policies … we will continue to finance the current account deficit,” he said.
South Africa’s current account deficit swelled to a near four-decade record of 7,3% of gross domestic product in 2007.
The country’s powerful trade unions and the ruling party’s communist allies – who backed the campaign of new African National Congress leader Jacob Zuma – have called for inflation targets to be scrapped, interest rates to be cut and spending to rise. – Reuters.

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