Inflation climbs to 8.8%

According to Statistics South Africa (Stats SA), Wednesday, inflation for January was driven 0.2 of a percentage point higher over the December 2007 rate as a result of price increases in food, transport, housing, medical care and health expenses, education, fuel and power.

“Today's inflation figure was actually exactly what we forecast.

“We expect inflation to peak at about 9.5% this year, only starting to drop by about 2009, with a possible up tick in inflation again in the third quarter of 2008.

“We don't see inflation coming down to within the 3 to 6% inflation target band within this year, and I think it will take some doing to even get inflation close to 7% this year,” said the economist.

Describing the fragile global economic environment, Lamberti said the ever weakening rand, rising global food prices, high oil prices and poor inflationary outlook in the United States is currently fuelling inflation.

He highlighted that any thoughts of a possible cut in the repo rate by the Monetary Policy Committee (MPC) when they meet again in April 2008 is very optimistic.

“There is, however, a very good chance that the rates will remain stable with the repo hovering around 11% this year.

“Even a cut in the first quarter of 2009 is optimistic,” he explained.

This month's inflation figure is the 10th consecutive breach of the Reserve Bank's inflationary target band.

“The problems at the moment is a product of the global environment and it's a problem that as the kind of country we are which is an emerging economy, we have less control over inflation than we think,” said Lamberti.

The low inflation environment in South Africa in 2001 and 2002 was as a result of low inflation globally, he said, adding the country has entered a very dangerous time in which future Gross Domestic Product (GDP) growth is stagnated, if not declining, coupled with high inflation.

“We are still going to see the GDP softening in the months to coming, despite yesterday's positive GDP figure,” he said.

Last year's fourth quarter GDP growth figures came in at 5.3%.

The power challenges currently facing the country, together with major mining companies in South Africa reporting reduced extraction with the possibility of thousands of retrenchments does not bode well for first quarter GDP growth.

“Our main concern is that even though food and fuel prices are oversees driven, that it leads to the demand for increased living wages which in itself further fuels inflation,” concluded Lamberti.

Article published courtesy of BuaNews