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Higher oil prices
are the main risk to South Africa’s inflation outlook but the Central
Bank will deal with this threat adequately, a senior Reserve Bank
official said on Wednesday.

“We are not pleased
with the current international environment where the oil price has gone
through the roof again,” Johan van den Heever, deputy chief economist
in the research department of the South African Reserve Bank, told
parliament.

“And that is
unfortunately in aAn environment where our institution fights against
inflation, a most unhappy outcome. So that is one of the negative
factors feeding into the inflation process,” Mr. Van den Heever added.

Partly due to
higher prices, the Central Bank raised its inflation forecasts at its
last policy meeting in March to an average 4.7 per cent for this year,
and 5.7 per cent in 2012, but said most risks to inflation are mainly
cost push in nature.

The bank left its
repo rate unchanged at 5.5 per cent in March, for the second time this
year, after reducing it by 650 basis points between December 2008 and
December 2010.

Industries under performing

The bank’s monetary
policy committee statement was cautious, though. It said the key
manufacturing sector was still underperfoming and said although
consumer consumption was recovering, it was unlikely to accelerate in
the near term.

Last week, deputy
governor, Daniel Mminele, said the bank will base its next policy
action on an assessment of second-round effects of oil and food prices
on inflation.

Inflation has been
inside the bank’s target of between 3 and 6 per cent since February
2010, and stood at 3.7 per cent year-on-year in February. The bank said
in its quarterly bulletin in March a sustained rise of $10 per barrel
in the price of oil added about 0.3 percentage points to inflation.

On Wednesday, Van den Heever said the bank would deal with the effect of the higher oil price.

“It is not the end
of the world. We come from a background where other factors have made
inflation slow down quite nicely and we are quite confident this
negative impact from the oil price will be dealt with adequately as
time goes on,” he said.

A relatively strong
rand currency has mainly cushioned South Africa from the impact of high
oil and food prices. The rand hit 3-month highs at 6.6310 last week and
was last trading at 6.75 to the dollar. Reuters