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MONETARY POLICY REVIEW

MONETARY POLICY REVIEW. Brian Kahn March 2001. MONETARY POLICY REVIEW. Introduction Recent developments in inflation the evolution of indicators of inflation factors affecting inflation Monetary Policy The outlook for inflation Assessment and conclusion. INTRODUCTION.

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MONETARY POLICY REVIEW

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  1. MONETARY POLICYREVIEW Brian Kahn March 2001

  2. MONETARY POLICY REVIEW • Introduction • Recent developments in inflation • the evolution of indicators of inflation • factors affecting inflation • Monetary Policy • The outlook for inflation • Assessment and conclusion

  3. INTRODUCTION • Inflation targeting • Inflation targeting: The international experience.

  4. Inflation targets & realised inflation rates

  5. Inflation targets & realised inflation rates (continued)

  6. Recent developments in inflation • Evolution of inflation indicators

  7. Consumer price inflation CPIX & CPI

  8. Contributions to CPIX inflation

  9. Production price inflation

  10. The price of Brent crude oil

  11. Brent crude & SA petrol prices

  12. CPIX consumer price inflation & the oil price

  13. Production price inflation

  14. FACTORS AFFECTING INFLATION • External environment

  15. Real GDP Inflation rates 1999 2000 1999 2000 (estimate) (estimate) World 3.4 4.7 5.4 4.6 Advanced economies 3.2 4.2 1.4 2.3 USA 4.2 5.2 2.2 3.2 Japan 0.2 1.4 -0.3 -0.2 Euro area 2.4 3.5 1.2 2.1 Developing countries 3.8 5.6 6.6 6.2 Africa 2.2 3.4 11.8 12.7 Asia 5.9 6.7 2.4 2.4 Western Hemisphere 0.3 4.3 9.3 8.9 Countries in transition 2.4 4.9 43.8 18.3 Source: IMF World Economic Outlook – October 2000 Annual percentage change in real GDP and inflation rates

  16. FACTORS AFFECTING INFLATION • Exchange rate developments

  17. US dollar per rand, euro, Australian New Zealand dollar

  18. FACTORS AFFECTING INFLATION • Labour markets

  19. Remuneration per worker, labour productivity & labour costs

  20. FACTORS AFFECTING INFLATION • Demand and output

  21. Real gross domestic product

  22. FACTORS AFFECTING INFLATION • Fiscal policy

  23. FACTORS AFFECTING INFLATION • Monetary conditions

  24. FACTORS AFFECTING INFLATION • Administered prices

  25. Component of consumer price index Administered prices 11,1 Public transport 4,0 Petrol and diesel 28,4 Communication services 6,2 Electricity 6,0 Paraffin 40,3 Licences 8,3 Water 9,1 Education 14,8 Medical services 7,2 Medical care goods 9,1 Administered prices excluding petrol and diesel 8,0 Overall consumer prices 7,0 Overall consumer prices excluding administered prices 5,4

  26. MONETARY POLICY

  27. The repo and short-term interest rates

  28. OUTLOOK FOR INFLATION • International context • World growth expected to moderate

  29. IMF Projections Real GDP Inflation Oct 2000 Feb 2001 Oct 2000 (Revised) World 4,2 3,4 3,8 Advanced economies 3,2 2,1 USA 3,2 1,7 2,6 Japan 1,8 0,5 Euro area 3,4 1,7 Developing countries 5,7 5,2 Africa 4,4 8,6 Asia 6,6 3,3 Western Hemisphere 4,5 7,0 Countries in transition 4,1 12,5 Source: IMF World Economic Outlook (October 2000)

  30. OUTLOOK FOR INFLATION • International context • World growth expected to moderate • World interest rates expected to fall • Oil prices expected to stabilise • No world inflation pressures • Points to relatively begin international environment.

  31. OUTLOOK FOR INFLATION • Domestic outlook • Expect growth to be above that of 2000 • Government fiscal policy only mildly expansionary • Private sector consumption expenditure expected to remain steady • Private sector investment expected to rise • Capacity utilisation rates not a cause for concern • No immediate pressure on labour cost increases • Current account is manageable, large deficit not expected • Capital flows uncertain, but flows from Anglo/de Beers and Telkom expected • Exchange rate uncertain, unless hit by some contagion effects of world economy slowdown. Threats to inflation: Stronger than expected international downturn accompanied by sharp rise in domestic expenditure.

  32. INFLATION EXPECTATIONS

  33. BER survey of inflation expectations 1st quarter 2001) Headline CPI inflation CPIX inflation 2001 2002 2003 2001 2002 2003 Finance 6,0 5,1 4,9 6,1 5,5 5,1 Business 6,3 6,5 6,6 7,9 8,0 8,0 Labour 6,5 6,7 6,3 7,9 7,7 7,7 Average 6,3 6,1 5,9 7,3 7,1 7,0 Households 7,3 - - - - - Grand average 6,5 - - - - - Source: Bureau for Economic Research, University of Stellenbosch

  34. Yield on government bonds

  35. RESERVE BANK INFLATION FORECAST

  36. CPIX forecast

  37. Assessmentandconclusion

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