inflation and moderate growth. meanwhile, the european central bank is still moving towards looser monetary policy, rather than away from it, as is the bank of japan. the result has been renewed global appetite for risk, leading to currency appreciation for most of the emerging markets which had previously experienced weakening exchange rates. domestic factors seem to have played only a supporting role in driving emerging market currency movements over this period. in south africa, markets appear to have welcomed the responsiveness of monetary policy to rising inflation ; the current account deficit also narrowed somewhat in the last quarter of 2013. but south africa ’ s economic fundamentals have on the whole not changed substantially, nor have markets assessed them differently : the current account deficit remains over 5 % of gdp and growth has deteriorated. it would be very rash indeed to assume that the rand ’ s long depreciation trend is now concluded, and that henceforth a strengthening rand will mitigate inflation. instead, south africa remains vulnerable to further changes in global sentiment, which could be sudden. the other aspect of exchange - rate linked inflation is pass - through. with certain prices, passthrough is quick and complete. the obvious example is petrol prices, which have exerted substantial inflationary pressure despite relatively flat international prices thanks to exchange rate depreciation. but many prices behave differently. in a weak economy, firms may choose to absorb higher import costs rather than pass them on to consumers, leading to a divergence between headline consumer prices and the exchange rate. this seems to have been the pattern from the start of 2011 until early 2014. however, at some point firms will judge that their profit margins have been eroded to an unacceptable degree, and they will start passing on these costs to consumers. we see evidence that firms are being squeezed in producer price inflation, which reached 8. 8 % in april, its highest level in two years. and we see evidence for higher pass - through in rising core inflation, which has picked up again after a period of stability in 2013. our conclusion is that pass - through has risen, pushing inflation above the target. this effect cannot be expected to abate just because the rand has recovered some lost ground. if the currency begins to trade in a stable band well above its old levels, stability will not necessarily moderate pass - through ; rather, it could convince firms to price in the new normal level. we should not assume that inflation will simply track the most recent movement of the exchange rate. bis central bankers ’ speeches 3

falls to 0, 565 in the aids scenario. and the estimates for 2010 show 0, 654 for a non - aids scenario compared with 0, 542 for an aids scenario. this is one very grave hurdle that we all, as citizens of the world, are facing. the recent death of little nkosi johnson who died at the age of 12 at the beginning of june 2001 highlighted a poignant and personal account of suffering that is being played out in millions of homes around the world. nkosi, who was born with hiv - aids, focused our attention on this very real problem and in his own way he made his mark. little boy nkosi survived for a decade longer than the doctors expected. he stole the hearts and minds of many people in south africa, and undoubtedly throughout the world, when he walked on to the stage at the 13th international aids conference in durban last year and told the audience of his plight. nkosi ’ s story shows us what we can achieve, no matter who we are or what age we are. and in his own way, he extends a challenge to each one of us who are committed to making our mark. i commend the girl guide association of south africa on its hiv / aids programme. i am particularly impressed that your association had the foresight to tackle hiv / aids awareness nine years ago. and i am similarly impressed about the work you are doing to make the lives of those afflicted a little easier. not only did little nkosi johnson make his mark at last year ’ s aids conference in durban, but the girl guide association of south africa did too. i urge you to persevere in your partnership with the department of health on their hiv / aids education programme. education can move mountains. empowering the youth by imparting the appropriate knowledge and skills will help them to protect themselves and face the challenges of life. in a bid to address the three - pronged scourge of low education, poor health and welfare services, the south african government ’ s budgets over the past few years have focused increasingly on these key areas. this does appear to be paying off to some extent. the rate of illiteracy has shown a downward trend since 1985. from an illiteracy rate of 21 per cent among people 15 years and older in 1985, south africa ’ s illiteracy fell to 16 per cent in 1997, according to the world bank ’ s african development indicators for 2000. in line with this