The bumpy ride in inflation set off by the rand crisis in late 2001 is slowly coming to an end, helped along by a readjustment in the consumer inflation numbers from January last year .
Before new rental data brought consumer inflation back down into single digits in April, it looked like inflation had no chance of coming close to the Reserve Bank's target range of 3%-6% for the year . But economists now expect the consumer inflation average for 2003 to only narrowly miss the target.
Ongoing concerns, however, are that government bodies and parastatals are hiking administered prices in excess of the target range and wage pressures have started building up.
But this year there should be a steep decline from the consumer price index's revised 8,8% in April. The producer price index, a leading indicator of price trends , has already fallen into single digits and in April was at its lowest level since mid-1998.
Food price inflation at the retail level, one of the greatest pressures on consumer inflation last year, fell back to 11,1% in April this year from a peak of 20,9%. At the producer level, prices have been falling even faster, which means food prices at the consumer level should carry on falling for the next few months.
Oil prices have given cause for concern because the petrol price contributed strongly to rising prices last year. But with the Iraqi war over and oil prices settling below US$30/barrel, this does not pose an immediate threat to inflation and should allow the domestic petrol price to fall further.
There are concerns that this year's decline in inflation is largely a result of technical factors because the annual consumer price increases are being calculated off the index's high levels of 2002.
That and the swift reversal of rising food prices, which peaked last year, are the main reasons behind expectations that consumer inflation will fall back into the target range by the end of the year.
Central bank governor Tito Mboweni is under pressure to soften his anti-inflation stance because of the stifling effect that high interest rates and a strong rand are having on growth, particularly in the manufacturing sector.
Independent economist Noelani King-Conradie questions the usefulness of inflation targeting in the SA context because it is a First-World policy mechanism in what is essentially a Third-World economy. "Inflation targeting is being implemented too rigidly. But that's a decision [finance minister] Trevor Manuel needs to make."
King-Conradie says there is sufficient room to cut rates but if Mboweni misses the target again it will undermine the credibility of the framework.
Mboweni's biggest challenge was to get below the key psychological double-digit level. The last time it did so was in mid-1995 under former governor Chris Stals's watch .
