The National Treasury has projected the consumer price inflation to drop to 4.3% in 2015.
This after the headline inflation rose from 5.8% in 2013 to a peak of 6.6% in June 2014, but subsequently declined to 5.3% in December 2014.
According to the National Treasury, a spike in maize and wheat prices combined with the effects of the weaker exchange rate led to the initial rise.
But strong global and domestic harvests and the recent sharp fall in world oil prices eased pressures during the second half of 2014.
“The inflation-targeting regime is robust.
“The gradual increase in both headline and core inflation (which excludes more volatile items) despite a weaker currency suggests that inflation expectations remain wellanchored, albeit at the upper end of the 3-6% target band,” the National Treasury said on Wednesday.
The National Treasury also said that the main risks to the inflation outlook arise from regulated prices, particularly where infrastructure costs need to be recovered.
This includes prices on electricity, water and transport.
“Inflation is projected to decline to 4.3% in 2015 from 6.1% in 2014.”
To ease the strain on consumers, the Reserve Bank has always aimed at maintaining headline inflation below the 6% target band.
Delivering the National Budget at the National Assembly later, Finance Minister Nhlanhla Nene said the projected average inflation of 4.3% laid a good foundation for growth.
“Although our fiscal position is constrained, there are considerable financial strengths on which South Africa’s growth strategy can build.
“Interest rates have remained moderate, which reflects the credibility of fiscal and monetary policy and the favourable inflation outlook,” he said.
The capital market rates at which government and the corporate sector borrow have declined over the past year, signalling continued investor confidence in the South African economy.
The Minister also said that the exchange rate depreciated by 11% against the US dollar in 2014, after declining by 15% in 2013.
He said this, coupled with low inflation, contributes to South Africa’s trade competitiveness, and partially offsets the deterioration in commodity prices.
He also said that banks and other financial institutions are well-capitalised.
The Minister said that South Africa has a buoyant capital market, is open to foreign investors and is a major contributor to foreign direct investment elsewhere in Africa.
“The first phase of implementation of the National Development Plan is elaborated in government’s medium term strategic framework.
“If we remain united and energised around its implementation – government, labour, business and all South Africans – we will continue to make progress towards a just and prosperous future,” he said. – SAnews.gov.za
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