GNFcomments May 2709

Comments: Comments: A A South South African African Perspective Perspective

May 2009

Introduction Introduction … …

• South Africa has an inflation-targeting monetary policy

framework. The continuous inflation target range for the year-on-year increase in the headline CPI (CPI for all urban areas) is 3 to 6 per cent.

• In 2007-08, policy had to deal with the continuing

pass-through of inflation pressures from a succession of international food and energy price shocks, developments in domestic electricity prices, and from the foreign-exchange rate of the rand

Consumer Consumer price price inflation: inflation: Targeted Targeted inflation* inflation* 13,6% Aug

8,5% March

Per cent and percentage points

Inflation Inflation targets targets and and outcomes outcomes as as at at March March 2008 2008 12

12

10

10

8

8

6

6

4

4

2

2

0

0 UK

Turkey

Thailand

Sweden

South Africa

Romania

Poland

Philippines

Peru

Norway

New Zealand

Mexico

Korea

Israel

Indonesia

Iceland

Hungary

Czech Rep.

Colombia

Chile

Canada

Brazil

Australia

Inflation target range or tolerance limit

Inflation as at March 2008

Targeted Targeted inflation* inflation* and and food food inflation inflation

14,9% March

The The effect effect of of food, food, petrol petrol and and electricity electricity prices prices on on CPIX CPIX inflation inflation

Weights, Weights, sticky sticky prices prices and and parity parity pricing pricing … …

• Going beyond the macro perspective  The CPI and the weighting of food  Stage of processing  Import and export parity pricing

Comparison Comparison of of the the category category weights weights of of the the inflation inflation target target measures measures Per cent

Food and non-alcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing and utilities Household contents, equipment and maintenance Health Transport Communication Recreation and culture Education Restaurants and hotels Miscellaneous Source: Statistics South Africa

CPIX (metropolitan and other urban areas)

CPI (all urban areas)

26,92 3,05 4,06 15,55

15,68 5,58 4,11 22,56

8,37 6,13 15,01 3,19 3,79 3,77 10,16

5,86 1,47 18,80 3,22 4,19 2,19 2,78 13,56

Comparison Comparison of of the the category category weights weights in in the the headline headline CPI CPI inflation inflation measure measure Per cent

Expenditure Group Total Very low Low Middle High Very high Food and NAB Food

15,68 14,27

Source: Statistics South Africa

39,96 37,45

35,80 32,84 33,25 30,45

24,95 10,25 22,93 9,17

Food Food prices prices in in the the PPI PPI and and CPI CPI

Parity Parity pricing: pricing: Maize Maize prices prices

Concluding Concluding comments comments … … responses responses • Monetary

policy: Flexible inflation targeting and exogenous shocks

• Other:

Integrated Food Security Strategy (IFSS); National Treasury (2002); Competition Commission (2002); Food Pricing Monitoring Committee

Headline Headline and and food food inflation inflation in in selected selected countries countries Per cent

Country China: Euro area: Hungary: Indonesia: Japan: New Zealand: South Africa: Tanzania: United Kingdom: United States: Venezuela:

Headline Food (33,6) Headline Food* (15,6) Headline Food (20,7) Headline Food (42,3) Headline Food (27,3) Headline Food (17,4) Headline Food** (21,0) Headline Food (55,9) Headline Food (9,0) Headline Food (13,9) Headline Food*

Note: Weight of food prices in CPI in brackets * Food and non-alcoholic beverages ** Food excluding soft drinks Sources: Bloomberg and national statistical agencies

2004

2005

2006

2007

3,9 10,0 2,2 1,0 6,7 11,6 3,5 11,0 0,0 0,9 2,3 0,8 1,4 2,3 4,9 5,9 1,3 0,7 2,7 3,4 21,7 25,0

1,8 2,9 2,2 0,7 3,6 11,6 2,1 11,2 -0,3 -0,9 3,0 1,4 3,4 2,2 4,4 5,9 2,0 1,5 3,4 2,5 16,0 25,1

1,5 2,3 2,2 2,3 3,9 11,5 13,1 11,6 0,3 0,5 3,4 3,0 4,7 7,2 6,2 8,0 2,3 2,5 3,2 2,4 13,7 25,6

4,8 12,4 2,1 2,7 8,0 11,5 6,5 11,4 0,1 0,3 2,4 3,9 7,1 10,3 7,0 7,0 2,3 4,5 2,8 4,0 18,7 26,0

Contributions Contributions to to CPI CPI inflation inflation Percentage change over twelve months* and percentage points

Total* Of which: Food and NAB Alcoholic beverages and tobacco Housing and utilities Health Transport Education Miscellaneous goods and services Other

2009 Mar

Jan

Feb

8,1

8,6

8,5

2,4 0,6 2,1 0,1 0,0 0,2 1,4 1,3

2,4 0,6 2,0 0,1 0,3 0,2 1,6 1,4

2,3 0,6 1,8 0,2 0,2 0,2 1,6 1,6

* NAB: Non-alcoholic beverages Source: Statistics South Africa

The The effect effect of of food, food, petrol petrol and and electricity electricity prices prices on on headline headline inflation inflation Percentage change over twelve months

Headline CPI CPI excluding petrol prices CPI excluding food and NAB* prices CPI excluding food, NAB and petrol prices CPI excluding food, NAB, petrol and energy prices * NAB: Non-alcoholic beverage Source: Statistics South Africa

Jan

2009 Feb

Mar

8,1 9,1

8,6 9,5

8,5 9,5

6,6

7,4

7,5

7,8

8,2

8,6

7,3

7,8

8,0