Inflation outlook appears bleak

THE INFLATION rate in August eased back below the expected figure but the events in the US are likely to see the disinflationary trend stopped and possibly reversed. According to Statistics SA the benchmark CPIX index - which excludes the impact of mortgage loans, and is used by the central bank to set monetary policy - slowed to 6.0% from 6.4% in July, and below expectations of a 6.2% rate. This is in line with the government's aim for a CPIX of between 3% and 6% over 2002. But the declining rand, and the effects of possible US retaliation for the terrorist attack on the oil price, remain stumbling blocks for government plans. Said SA Reserve Bank (SARB) governor, Tito Mboweni: "The major concern now is what's going to happen to the oil price. Because, if things really go wrong in that part of the world, many market players will begin to panic. "We don't need that - the oil price is a very critical component in our inflation targeting framework...." The increase in fuel prices is again likely to spark secondary price pressures which will have an adverse effect on consumer inflation figures in coming months.