Mariam Isa
18 July 2008
Johannesburg — SPECULATION that an official revamp of consumer price data will lead to lower inflation next year was good, because it would reduce inflation expectations, treasury director-general Lesetja Kganyago said yesterday.
"It is good because it means inflation expectations will be lower," he told reporters.
Kganyago was speaking after a historic meeting between the Congress of South African Trade Unions (Cosatu) and top treasury and South African Revenue Service (SARS) officials to discuss issues affecting the economy -- including soaring inflation and rising interest rates.
Cosatu secretary-general Zwelinzima Vavi said the union federation asked for the meeting to tackle what it sees as the economy's main policy problem -- inflation targeting, which has prompted higher interest rates.
"Inflation targeting is really a problem for SA ... we blame it for slowing growth and falling standards of living," he said .
A survey released by the Presidency earlier in the day showed service delivery was improving in SA, but confidence in the future had plunged in the past year.
Cosatu had called for the meeting, which both sides described as "comfortable". It will kick off a series of deeper discussions, but Cosatu officials said they would not call off rolling national strikes against the rising cost of living.
Vavi described the economic issues under scrutiny as a "can of worms", including the profit that food producers and retailers were making as a result of soaring food prices
"We touched on almost everything we should on the economy. The treasury made a presentation about what is happening (in SA) and the global economy ... we stopped short there," he said. "We have not looked beyond that in terms of policy choices for SA ."
The newly elected leaders of the African National Congress -- who are heavily backed by Cosatu -- have repeatedly said there will be no major changes to economic policy. Yet investors fear inflation targeting may be scrapped or revised, which could undermine SA's hard-won financial credentials.
Kganyago declined to comment directly on a report from Investec Asset Management and other analysts saying that a sharp fall in the weighting for food in official price data would lower inflation, which has breached an official 3%- 6% target for 14 months in a row.
Finance Minister Trevor Manuel said the discussion yesterday did not get into "the heart" of the mounting debate on how inflation was measured.
Statistics SA is reweighting its consumer price indices, including CPIX, the gauge monitored by the Reserve Bank for interest rates. Inflation rates based on the new weights will be published from next year. Investec Asset Management said this week Stats SA had been too slow to apply them, which means the inflation rate is overstated and interest rates are much too high.
The annual CPIX increase accelerated to 10,9% in May, a five-and-a-half-year peak, after breaching its official target range for 14 months in a row. Most economists are speculating the new inflation weights will lower CPIX by between one and two percentage points.
Others say it is impossible to make assumptions as it is the rate of change in prices, and their expected trajectory, which is what concerns the Bank .
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Do not "revamp" anything just give us the truth in its entirety,then it is up to the individual to ajust his lifestyle accordingly.It does not have to be forever,a little belt tightning now will go a long way in the future.