South Africa Mboweni Says Easier Oil Prices Still a Risk

Posted 02 November 2006 @ 10:54 am EET     Print     Reprint     E-Mail     Comments

JOHANNESBURG (AP) - Sustained lower international oil prices will help to contain inflation in South Africa, but this should not be taken for granted, central bank governor Tito Mboweni said on Thursday.

"If sustained, the recent decline in oil prices augurs well for inflationary developments going forward," he said in a speech posted on the Reserve Bank's Web site. But risks to the inflation outlook remained as crude oil prices were volatile, Mboweni said in a speech prepared for delivery at a breakfast meeting in Durban.

Crude oil prices have fallen about 25 percent since peaking in July this year, slipping below $60 per barrel early last month and prompting a production cut by OPEC. Crude has traded in a range of $56.55-$61.79 for the past month. Sharp falls in South African petrol pump prices over the past three months are expected to temper rising consumer price inflation which has been edging towards the upper end of the central bank's 3-6 target range.

The declines totalling around 15 percent over the three month period reverse a key threat to inflation and should help to counter rising food prices and robust consumer demand.Mboweni has forecast the targeted CPIX inflation measure to push towards 6 percent and remain near that level until the second half of 2007, while the National Treasury has warned it could pierce the upper end of the target range early next year.

CPIX inflation which excludes mortgage costs ticked up to 5.1 percent in September, while factory gate prices, which tend to lead consumer prices by a few months, moderated to 9.0 percent in the same month. But Mboweni said the lower oil prices could not be taken for granted, given the political tensions in the Middle East that impacted the global market.

"Nevertheless, given the underlying market conditions and vulnerability of oil prices to geopolitical tensions, these lower prices cannot be taken for granted and oil prices continue to pose an upside risk to our inflation outlook," he said.

The central bank has already hiked interest rates by 150 basis points since June to contain rising inflationary pressures, driven by strong consumer demand and record credit and debt levels, and most analysts expect more increases ahead. A Reuters poll last month showed the markets expect a further half percentage point rise in the repo rate to 9.0 percent in December.