It is by now well-known that the South African government has set a target of 3 to 6 per cent for CPIX inflation. In 2002, the actual outcome was 10 per cent. While disappointing, this outcome was not unexpected in the light of the 34 per cent depreciation of the nominal effective exchange rate of the rand during 2001.
It fed higher rand prices for imported products into the inflation spiral. In order to brake these inflationary forces, the Reserve Bank therefore raised its repurchase rate on 4 occasions from January to September 2002, on each occasion by 100 basis points. The 2001 depreciation of the rand was fairly soon reflected in production prices.