'Job not done' on inflation-Kganyago says

South Africa’s central bank governor has warned that there are still risks to inflation, even as he acknowledged that the rate has come down significantly.

"We are focused on the outlook for the South African economy for both growth and inflation. The job is not yet done," Lesetja Kganyago told Bloomberg Surveillance in Jackson Hole, Wyoming last week.

"The decline in inflation is welcome. But we’ve just had two good prints of inflation. That does not mean that the inflation monster has been conquered. There are still risks on the horizon and we will watch that very closely," he said.

His comments came just days after data from the statistics office showed South Africa’s inflation had eased to a two-year low of 4.7% in July from 5.4% the month before.

The Reserve Bank’s monetary policy committee held interest rates at 8.25% last month after raising borrowing costs by a combined 475 basis points at its 10 prior meetings. It aims to bring inflation back to the 4.5% midpoint of its target range, where it prefers to anchor expectations.

The central bank expects inflation to average 6% this year, 5% in 2024 and 4.5% in 2025.

One of the risks to its forecasts is the currency, Kganyago said.

"On the horizon, we actually see the exchange rate as one of the risks to the inflation outlook. So if there was to be a weakness in the currency, it does have implication for the inflation outlook," he said. He also qualified that comment slightly by noting that the bank’s research has found the pass-through effect of currency weakness to price pressures has moderated.

The rand has depreciated almost 9% against the dollar this year, making it the fourth-worst performing emerging market currency of those tracked by Bloomberg.

Fed

The Federal Reserve may need to raise interest rates further to ensure inflation is contained, Fed Chair Jerome Powell said on Friday, nodding both to easing price pressures and the surprising overperformance of the US economy and promising to proceed "carefully" at upcoming meetings.

Powell said Fed policymakers would "proceed carefully as we decide whether to tighten further," but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2% target.

"It is the Fed’s job to bring inflation down to our 2% goal, and we will do so," Powell said in a keynote address to the Jackson Hole Economic Policy Symposium. "We have tightened policy significantly over the past year. Although inflation has moved down from its peak — a welcome development — it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective."

In that context, recent data has raised a new concern, he said.

"We are attentive to signs that the economy may not be cooling as expected," with consumer spending "especially robust" and the housing sector possibly rebounding, Powell said.

The economy continues to grow above trend, Powell said, and if that continues "it could put further progress on inflation at risk and could warrant further tightening of monetary policy."

His remarks showed the Fed wrestling with conflicting signals from an economy where inflation has by some readings slowed a lot without much cost to the economy — a good outcome, but one that has raised the possibility that Fed policy is not restrictive enough to complete the job.-Fin24