The Reserve Bank is to pay close attention to core inflation, so as to assess the effect of a weaker rand feeding through to prices in the economy.
In its Monetary Policy Review (MPR) released on Tuesday, the central bank said the core inflation rate “has tracked higher and is the focus of heightened scrutiny”.
Core inflation excludes energy and food costs.
“Stronger second-round effects from depreciation and sharp increases in unit labour costs would have significant and negative effects on the inflation outlook,” said the bank.
The MPR is published bi-annually. It reviews domestic and international developments that have affected inflation and that impact on the monetary policy stance. It also provides an assessment of the factors determining inflation.
The depreciation of the rand continued to be the main upside risk to the country’s inflation outlook.
“Rand depreciation continues to be the main upside risk to the domestic inflation outlook, although the pass-through from currency movements to headline inflation has proven to be relatively muted since the onset of sustained depreciation in May 2011,” noted the MPR.
At its last Monetary Policy Committee (MPC) meeting of the year last week, the central bank kept the repo rate unchanged at 5%. The bank forecasts that inflation will remain within the 3% to 6% target range.
“A significant deterioration in the risks to the medium term inflation outlook may necessitate appropriate action to anchor inflation expectations,” said the bank in the MPR. – SAnews.gov.za
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