The CPI data released this morning shows that the Consumer Price Index (CPI) inflation rate slowed to 5.9% annual growth for October, which is within the inflation target range of 3-6%. This suggests that South Africa can expect a gradual easing of inflationary pressure, and that the independent stance maintained by the Reserve Bank is helping to improve price stability and bring us back into the target range. This point notwithstanding, we are definitely not out of the woods yet. It is essential that inflation is contained on an ongoing basis; its impact on households across the economic spectrum, and particularly on the poor, and those living off fixed incomes, remains one of the most important impediments to economic development in South Africa. The calls for an amendment to the mandate of the Reserve Bank are often made in isolation of the actual economic context - conducting monetary policy is an extremely technical and sensitive area of governance. It is crucial that the Bank is sure of its independence in order to meet its mandate of price stability. The DA will continue to support the notion that the Reserve Bank must remain independent against undue political interference. Significant inflationary pressure is expected from the sources set out below: Eskom tariff increases: In response to a DA question posed at the finance committee last week, a senior Reserve Bank official clearly stated that inflation will remain above 6% if Eskom were to increase the price of electricity to 45% for each of the next three years. Even at a lower rate, electricity tariff increases for Eskom will put pressure on prices. Oil price base effects: In December 2008, Brent crude oil dipped to $40 per barrel, but has inched upwards to the current price of $76 - which translates to a 90% increase for December 2009 if the oil price does not change for the next few weeks. Oil prices showed annual contraction for most of 2009 due to the peak recorded in the previous year, but the sudden drop in prices towards the end of 2008 has technical repercussions for CPI. Higher wages: Wage determination is traditionally "backward looking", which means that workers would use recent inflation data as a basis for negotiations. This effectively perpetuates high levels of inflation since there is no account of the future drop in inflation figures. The increase in the weighting of the services component of CPI from 40.6% to 45.8% compounds this source of inflationary pressure. Increases to the public sector wage bill have also outpaced inflation by a growing margin and as the public sector swells, so too does it impact on the rate of inflation. Downward sticky prices: In general, South Africa has a particularly inflexible price-setting culture - or "downward sticky" behaviour in the market. This means that retailers and service providers are often loathed to reduce their prices in the event of reduced demand. This is particularly true of services inflation, where structural determinants such as employment contracts effectively exclude the option of flexible wage setting conditions. The price of goods also remains high due to relatively weak competition among major retailers and producers.