UPDATE 1-S.Africa union urges review of inflation targeting

* Inflation targeting should be reviewed

* Central bank should also focus on job creation

(Recast with comments from statement)

By Gugulakhe Lourie

JOHANNESBURG, July 18 (Reuters) - South Africa's powerful COSATU labour federation reiterated its demand on Saturday that the country's inflation targeting policy be reviewed.

Inflation targeting has been a source of friction between the ANC government and its allies in the communist party and trade union movements, who say it has impoverished their members.

"The constitution says the Reserve Bank acts to balance and protect the value of the currency of the Republic. It does not say in order for it to do that it should just stick with inflation targeting as a means only in stabilising a crisis," COSATU President Sdumo Dlamini told Reuters in a telephone interview.

"We say that has to be reviewed in order for the Reserve Bank to also focus on other challenges, in particular job creation...one major issue that has to be addressed in South Africa."

COSATU, an umbrella labour federation representing two million workers and an ally of South Africa's ruling ANC, has propelled South Africa's President Jacob Zuma to power. It has been emboldened by his taking office, demanding big wage increases and threatening strikes across several sectors in recent weeks.

But Zuma has resisted demands in the face of economic difficulties.

COSATU said while low inflation levels are desirable, it does not regard inflation as the foremost problem in the current economic situation.

"Our unemployment rate and inequality gap are amongst the highest in the world and the Reserve Bank cannot be allowed to stand in its corner and be aloof to these realities," said Dlamini.

He added that the union would debate the issue within the alliance, but if nothing resulted from that, party delegates should take a decision on the matter at its congress in September.

Finance Minister Pravin Gordhan said last month South Africa will keep its policy of targeting inflation, which has helped to stabilise prices and encouraged economic growth.

(Reporting by Gugulakhe Lourie)