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South Africa's Gordhan Says Higher Inflation A Worry
South Africa's Minister of Finance Pravin Gordhan (C) delivers his 2012 budget speech at parliament in Cape Town February 2012. PHOTO By Reuters/Schalk van Zuydam/Pool.
By Xola Potelwa
22/08/2013
JOHANNESBURG (Reuters) - A jump in South Africa's headline consumer inflation needs to be watched, Finance Minister Pravin Gordhan said on Thursday, citing concern about higher fuel prices in tandem with a weaker rand currency.
Gordhan also said Africa's top economy has not yet seen a big increase in exports even as the rand has softened.
"A rapid depreciation of the rand at the same time as the kind of increases in fuel prices (we're seeing) is not healthy for inflation in South Africa," Gordhan told Reuters on the sidelines of press briefing in Johannesburg.
"We've got to be watchful."
Headline inflation accelerated to 6.3 percent year-on-year in July, from 5.5 percent the previous month, breaching the central bank's target band of 3-to-6 percent, mainly because of higher fuel and electricity prices.
While the weaker rand should support manufacturers as it makes South Africa's exports more competitive, Gordhan said the benefits so far had been limited.
"We don't see the massive increase in exports that we should be seeing," he said.
The rand fell to a four-year low on Thursday, mainly because investors dumped risky emerging markets assets due to uncertainty about whether the U.S. Federal Reserve would start to curtail its monthly bond-buying programme.
The rand has lost 22 percent against the dollar since the start of the year and is looking more vulnerable than other emerging market currencies because of continuing labour unrest in the domestic auto manufacturing and mining industries.
South Africa is facing strikes across leading sectors of the economy, with the auto manufacturers strike in its fourth day, and some construction workers and gold miners threatening to down tools from next week.
While many of the factors driving weakness in the rand were outside of South Africa's control, Gordhan said the country would weather the storm mainly because of a floating exchange rate and a bond market that offers high yields to investors.
"We are not the Fed of the United States. We are not tapering QE. We are not the financial investors who look for yield and move their money in a way in which they can get their yield. But we'll survive it."
Gordhan said economic growth for 2013 was likely to come in close to the central bank's 2 percent forecast, as mining production had shown some improvements since last year.
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