Manuel defends inflation gauge

From Fin24, Apr 6 2008.

Cape Town - South Africa's finance minister on Friday defended the
country's main inflation gauge, which has been criticised by labour
groups who say it has prompted overly aggressive interest rate hikes.

Finance Minister Trevor Manuel told parliament the CPIX inflation
measure, which includes volatile items such as food and fuel, is a
realistic gauge for South Africa.

Global inflation in food and energy costs has helped push CPIX well
above the ceiling of the central bank's target range, and the bank
has responded by raising its benchmark rate to 11 percent.

Labour groups have criticised the rate hikes and called for the target
to be scrapped.

However, Manuel said an inflation gauge excluding those volatile items
would not fit South African conditions, because food and transport costs
made up a large share of spending for the country's poor.

"The inflation target measure thus has to be realistic in order for
monetary policy to be credible," he said in a written reply to a
parliamentary question, without referring to the range.

South Africa targets CPIX - consumer inflation minus mortgage costs -
at between 3 and 6%. CPIX soared to a five-year record of 9.4% year-on-year
in February.

Central bank governor Tito Mboweni last week urged the government not to
change the inflation target, saying this would damage investor confidence.

"We believe it is appropriate to target a broad measure of consumer inflation
that includes food and petrol, but excludes mortgage interest costs," Manuel
said.

- Reuters