Rate of inflation to slow

Article By: Evan Pickworth

Mon, 21 Jul 2008 08:06

The rates of growth in diesel, petrol and food inflation should start coming down towards the end of the year, says chief economist from Econometrix Dr Azar Jammine.

"Remember, inflation does not measure whether prices are rising, but the rate at which they are increasing," he explains.

"And the rate of growth in food is coming down and may have peaked. The same for diesel and petrol. In fact, for rates to grow oil has to rise to $250/barrel or more, which is unlikely. Even oil at $140/150 will cause inflation rates on petrol and diesel to come down significantly," says Jammine.

He says he expects a peak in CPIX at 12.5 percent/13 percent and for it to then move back below six percent beyond 2011.

He adds that interest rates will probably increase by another 100 basis points, stay strong for a year and then come down marginally after that.

"The central bank is hopefully looking forward – we get a sense they are – and will anticipate rates coming down and therefore start cutting."

Jammine does note, however, that inflation expectations will continue to rise as underlying inflation creeps higher.

"Underlying inflation was at 4.5 percent or so for some time, but it has started to escalate with the real damage caused by Eskom's request for a 60 percent price increase on the back of higher oil and steel prices. That sent inflation expectations sky-high," concluded Jammine.

South Africa's central bank is set to make its next rates decision on 14 August.

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