target if it did not act. the risks around its forecast implied that second - round effects would manifest if it did not act to prevent them. in the run - up to the hiking cycle, the bank noted with concern persistently above - inflation wage settlements despite weak growth and the clustering of inflation expectations around the upper end of the target range. these were signals that inflation could permanently accelerate if further shocks occurred. the problem is not that inflation may exceed 6 per cent ; the problem is that people may come to believe that the south african reserve bank does not target 3 to 6 per cent but instead targets 6 per cent plus a “ supply shock premium ”. such a perception would compromise the credibility that the bank has earned since inflation targeting was introduced in 2000. as i ’ ve mentioned, price and wage setters have enormous discretion if they believe that the true target is above the set range. the bank wants to avoid such a situation. “ fit for the future ” and the agribusiness and agro - processing sectors the environment that i have described today may feel discouraging to you. i would not want that to be my overarching message. i think that the actions south africa takes now, to reinforce our framework, will protect economic competitiveness in the global arena and encourage future growth. the national development plan has highlighted the potential of the agriculture and agroprocessing sectors, particularly for increasing employment but also growth. although south africa is a leading exporter of certain food commodities – including maize, sugar and fruit – there is great scope for expansion of the agro - processing sector. even a cursory glance at the manufacturing production statistics makes them look encouraging, as the weight of the food and beverages category has increased from 11 per cent in 2000 to 24 per cent currently. however, the contribution from manufacturing production to gdp has been shrinking over this period, so agro - processing volumes have merely grown in line with real gdp. i am sure that this observation will be a key focus of your conference over the next two days, so i will not say more on the subject. there are multiple advantages to expansion. agriculture is relatively labour - intensive, and it is a crucial source of employment for rural communities. increasing agricultural output would also strengthen food security, not just in south africa but in sub - saharan africa. furthermore, expanding manufacturing production is key to creating stable jobs suitable for our underemployed workforce. the international monetary fund has recommended expansion of

remains far from the hoped - for recovery. structural reforms to improve opportunities for small businesses and job seekers would increase investment and productivity, and should therefore complement the current macroeconomic policy stance of the bank. food price inflation and the exchange rate in 2015, due to favourable oil price shocks, inflation averaged 4, 6 per cent. in contrast, inflation outcomes have exceeded 6 per cent this year because of food and petrol prices. the bank expects headline inflation to average 6, 7 per cent in 2016 and 6, 2 per cent next year. food prices are increasing due to the drought, whereas petrol prices are increasing because oil prices have risen off the extremely low levels prevailing at the start of 2015 and a weaker exchange rate. the drought, like oil price movements, is a supply - side shock to inflation. domestic price increases in maize, south africa ’ s staple food, have been extreme. since 1 january 2015, yellow maize prices have increased by almost 70 per cent while white maize prices have increased by more than 130 per cent over the same period. 5 in total, food prices make up 14 per cent of the consumer price index, and this measure increased by 11, 3 per cent calculated as change in real gross value added at basic prices. as traded up to 20 may 2016 on the south african futures exchange ( safex ). bis central bankers ’ speeches in april 2016, up from 4, 3 per cent ten months earlier. food inflation is forecast to peak at 12 per cent in the final quarter of this year. dry conditions since 2015 have caused a long period of herd culling, which increased the shortterm supply of meat and temporarily suppressed meat price inflation – thus, although grains inflation has accelerated since june 2015, meat price inflation accelerated this year. meat price dynamics were an important reason why food inflation rose at a slower - thanexpected pace last year. however, this trend has reversed in 2016, as food inflation rose faster than we had anticipated in the first four months of the year. furthermore, the rising cost of meat inputs and the lower supply of animals to the market are likely to push meat prices significantly higher over the course of 2016. food prices are not solely determined by domestic supply and demand ; they are increasingly influenced by international food prices and therefore by the exchange rate. 6 this is not necessarily negative. although south africa is a net food exporter, we do not have a comparative advantage in all food production. thus we rely on international prices, which are predominantly us