of 3 to 6 per cent. in the twelve months from 1 april 2005 to 31 march 2006, the year - on - year cpix inflation rate averaged 4, 1 per cent, but changes ranged between 3, 5 and 4, 8 per cent over the period. from march to june 2006, cpix inflation accelerated from 3, 8 per cent to 4, 8 per cent. services price inflation continued to decline and had fallen below goods price inflation by the beginning of 2006. this was partly a reflection of the continued containment of increases in administered prices, other than petrol prices. the higher trend in goods prices was initially mainly due to petrol price increases, and more recently food price increases. during the first nine months of 2005, food price inflation averaged 1, 8 per cent and therefore contributed to the downward trend in inflation. following the strong increase in maize prices towards the end of 2005, food price inflation began to increase and had risen to 7, 2 per cent by june 2006. by contrast, the prices of a number of categories of goods fell, particularly clothing and footwear, and furniture. production price inflation increased over the past year and averaged around 5, 5 per cent in the first four months of 2006, compared to 2, 3 per cent in june 2005. however, a further acceleration occurred in may and june 2006, when producer inflation reached levels of 5, 9 per cent and 7, 5 per cent, respectively. changes in energy and food prices provided much of the impetus to higher production prices. for much of the reporting period the inflation outlook was fairly stable and favourable. this allowed for an unchanged repo rate of 7 per cent for a prolonged period following the reduction by 50 basis points in april 2005. in the past year, there were a number of developments that supported a favourable inflation outcome. lower inflation expectations appeared to have had an impact on wage settlements which have declined steadily. unit labour cost increases were also moderate, with an average rate of increase of 3, 4 per cent for 2005, significantly down from the rate of 6, 5 per cent recorded in 2004. these developments, combined with the increased credibility of monetary policy as indicated by improved inflation expectations, were expected to support sustainable low inflation. the inflation outlook was also supported by continued fiscal discipline, output growth in line with growth potential and low world inflation. the initial impact of the significant increase in international oil prices on world inflation, world growth and domestic inflation was minimal, confounding earlier fears of a repetition of

t t mboweni : overview of the south african economy address by mr t t mboweni, governor of the south african reserve bank, at the 86th ordinary general meeting of shareholders, pretoria, 23 august 2006. * * * we live in an ever - changing global environment, an environment that is characterised by opportunities and hope, but also fraught with risks. in this environment the south african reserve bank ( bank ) must implement its mandate and manage the associated risks to ensure that south africans benefit from opportunities emanating from a changing world. today, i am pleased to report on another successful year in the eighty - five - year history of the bank. the achievement and maintenance of price stability remains the primary objective of the bank. indeed, the most significant accomplishment of the bank has been the containment of inflation within the target range since september 2003. this does not imply that the other functions of the bank are neglected. on the contrary, these remain crucial in the operations of the bank. today we also release our annual economic report which covers the broader aspects of the domestic and international economy that impact on many of the activities of the bank. this address will highlight, where relevant, some of the salient economic developments which have affected our operations. the focus of this address is on the main operational areas of the bank including monetary policy, monetary operational procedures, gold and foreign exchange reserve management, the national payment system, banking regulation and supervision, international co - operation and internal administration. monetary policy monetary policy during the past year was conducted against the background of a strongly growing international economy and buoyant commodity prices. this strong growth, combined with rising geopolitical tensions and other supply constraints, placed upward pressure on international oil prices, which reached highs of almost us $ 80 per barrel in recent weeks. despite the high oil prices, world inflation initially remained subdued, but inflationary pressures have since begun to emerge in a number of countries. this has prompted the tightening of monetary policy by several central banks in the past few months. domestically, the economy grew by 4, 9 per cent in 2005. in the first two quarters of 2006, economic growth remained robust but showed some moderation compared to 2005. an annualised growth rate of 4, 2 per cent was recorded in the first quarter of 2006. inflation remained under control in the period under review, with changes in cpix ( that is the consumer price index for metropolitan and other urban areas excluding mortgage interest cost ) remaining within the target range