SOUTH Africa’s Finance Minister Trevor Manuel said on Thursday wage increases had negative implications for price stability, but it was important to ensure that inflation did not erode workers’ salaries.
The central bank has cited electricity tariffs and wage settlements among the key issues its monetary policy committee will monitor closely as it battles to bring soaring consumer inflation back to within a 3-6% target range.
“It’s important that we never look only at numbers … Even in macroeconomics the reason why we fight for price stability … is that you don’t have inflation erode the incomes of people,” Manuel told journalists at the launch of South Africa’s 2008 tax season.
“It’s difficult because it changes inflation expectations and it fuels inflation, but I think that we need to develop a sensitivity to how to deal with these kinds of things.”
“You can’t in an environment where inflation is above 8% ask workers to take a 4% increase. I think we need a realism,” he added.
South Africa’s labour unions have indicated they would ask for double digit wage increases this year to cushion workers against rising prices.
The targeted CPIX inflation gauge has persisted above the top end of the target range since April 2007, and jumped to a new five-year high of 10,1% year-on-year in March.
The central bank said on Tuesday inflation was expected to rise, but that it remained committed to bringing the gauge within target range “over a reasonable time horizon”.
In a twice-yearly monetary policy review, the Reserve Bank said the inflation outlook has deteriorated and that it expected inflation to peak in the near term and then follow a downward trend to return to within the target range by the end of 2009. – Reuters.