Bloomberg News

Food, Fuel May Quicken South African Inflation, Davies Says

June 06, 2011

(Updates with comment from Davies in second paragraph.)

June 6 (Bloomberg) -- South African Minister for Trade and Industry Rob Davies said food and oil prices posed “major threats” to Africa’s biggest economy, while an “overvalued” rand undermined its manufacturing industry.

“We have to take account of the fact that there are some major threats on the inflation front: oil prices and food prices,” Davies told reporters in Johannesburg today. The Reserve Bank last month said inflation will exceed its 3 percent to 6 percent target range in the first quarter of next year, before dropping back into the band the next quarter.

Meanwhile, manufacturers “would have made more progress if we had a more competitive currency” which was inflated due to capital inflows, some of which stem from quantitative easing in the U.S., Davies said. “It’s fuelling an appreciation of our currency,” he said.

Manufacturing, which makes up 15 percent of the economy, was the best-performing industry in the first quarter, expanding 14.5 percent compared with annualized growth of 4.8 percent in gross domestic product. That performance may not last, Davies said.

The rand, which has gained more than 9 percent against the dollar in the last 18 months, strengthened as much as 0.6 percent to 6.6759 to the dollar today.

--Editors: Philip Sanders, Gordon Bell

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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