R212 for a loaf of bread in South Africa?

Reserve Bank governor Lesetja Kganyago has illustrated the importance of a stable inflation rate on social media, noting that the price for a loaf of bread, for example, could spiral to more than R200 if the consumer price isn’t properly managed.

South Africa’s inflation rate reached the mid-point of the central bank’s target range of 3% to 6% in December – something the Reserve Bank said would allow for flexibility in dealing with price shocks.

The annual inflation rate in South Africa fell to 4.5% in December 2018 compared with 5.2% in November, while core inflation, which excludes the prices of food, non-alcoholic beverages, fuel and electricity, is at 4.4%, StatsSA said late in January.

What inflation rate should we have? asked Kganyago in a tweet on Sunday.

Speaking at Davos last month, Kganyago said that the country’s central bank is seeking to anchor inflation at the midpoint of its target range of 3% to 6% to allow flexibility.

While risks to global economic growth are “without a doubt” a dominant concern and the domestic inflation outlook is largely “contained,” it’s important to bring inflation expectations closer to 4.5%, he said in an interview with Bloomberg TV in Davos.

“We would like to see inflation and inflation expectations moving closer to the mid-point of our inflation targeting range because that gives us the flexibility that we are actually looking for, that we should be flexible within the target rather than flexible outside of the target,” Kganyago said, adding it was the correct decision to raise rates last year.

By way of an example, Venezuela’s economy has been crippled by hyperinflation, which occurs when the monthly inflation rate exceeds 50% per month. According to a study by the country’s opposition-controlled National Assembly, the annual inflation rate reached 1,300,000% in the 12 months to November 2018.

South Africa’s neighbouring country Zimbabwe, meanwhile, has also struggled to keep inflation in check – currently at 56.90%.

Read: 5 things to look out for in the 2019 budget

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R212 for a loaf of bread in South Africa?