Inflation expected to be contained

Due to the relatively subdued state of the South African economy, inflation is expected to be contained, says Reserve Bank Deputy Governor Daniel Mminele.

"The moderate pace of 'core' inflation (4.4% in March when excluding food, petrol and energy) shows that despite some evidence of price pressures becoming more broad-based, these are still expected to remain contained by the relatively subdued state of the domestic economy," he said on Thursday.

Inflation has breached the central bank's target of between 3% and 6% in the past year. In March inflation was at 6%.

The bank expects inflation to gradually decline from the second quarter of this year onwards, with it averaging 5.2% by the end of the forecast period at the end of 2013.

Additionally, the central bank's projection for growth in 2012 at 3% still "falls marginally short" of last year's growth of 3.1%.

"[It falls short] of the rate of growth required to put a serious dent into unemployment. The latest figures show an unfortunate rise in unemployment in the first quarter of 2012," explained the deputy governor.

On Tuesday, data released by Statistics South Africa showed that unemployment rose to 25.2% in the first quarter of 2012 compared to 23.9% in the fourth quarter of 2011.

South Africa was not immune to global challenges.

"Yet the country's strong trade links with the European Union; its reliance on commodity exports; and its liquid and sophisticated financial markets provide as many channels for the transmission of external shocks. The past year's fluctuations in domestic equities, bonds and the exchange rate, as well as the sensitivity of local GDP to the global cycle, bear testimony to this relationship," said Mminele.

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