SA Reserve Bank: Statement of the Monetary Policy Committee

The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas declined to 3,7 per cent in July 2010, compared with 4,6 per cent in May. Goods price inflation measured 2,1 per cent in July, while services inflation, which had been relatively sticky, declined to below the upper level of the target range and measured 5,4 per cent. The categories of housing and utilities (mainly electricity) and miscellaneous goods and services (predominantly insurance costs) together contributed 2,2 percentage points of the 3,7 per cent inflation outcome. However, electricity price increases were lower than expected. There was also a quick reversal of the influence of the Fifa World Cup on some categories. This was particularly noticeable in the category of hotels which experienced a month-on-month price decline of 11,2 per cent. CPI excluding administered prices measured 2,9 per cent ie below the lower limit of the inflation target band.


The recent upward trend in producer price inflation was reversed in July when it measured 7,7 per cent, having peaked at 9,4 per cent in June. Food price inflation remained benign, with agricultural prices increasing by 0,2 per cent on a year-on-year basis, while manufactured food prices declined by 1,0 per cent over the same period. This suggests that food prices at the consumer level are likely to remain contained for some time, notwithstanding higher global food prices. ...

Monetary policy stance: 
The assessment of the Monetary Policy Committee is that the improved inflation outlook creates sufficient room for monetary policy to provide additional stimulus to the somewhat fragile recovery of the domestic economy which remains vulnerable to the uncertain global environment. The MPC has decided to reduce the repurchase rate by 50 basis points to 6,0 per cent per annum with effect from 10 September 2010. The MPC views this action to be consistent with the continued attainment of the inflation target, having given due regard to the risks to the outlook. The scope for further downward movement is seen to be limited, but this will be assessed on an ongoing basis. Our approach remains forward-looking and is informed by close examination of the data and future developments. ... more