Floods and the oil price mean cash will be tight

2011-02-12 10:00

Just as we were beginning to celebrate the passing of the recession, the Reserve Bank is hinting that our inflation prospects are not at all encouraging.

When we talk of economic indicators that have a significant inflationary effect, oil seems automatically to top the log and the climate hardly gets a mention.

But this summer, particularly in the southern hemisphere, the strange and abnormal rainfall puts the climate right at the top of the list.

The elements have dealt us cruel blows, with some European countries experiencing record low ­temperatures.

The winter up north has seen oil prices return to levels seen at the height of the recession. With the oil price at more than $100 (about R700) a barrel, the next fuel adjustments may see us paying close to R10 a litre. I believe that by now everyone knows that when that happens, food prices also go up.

The floods that destroyed a lot of crops mean grain exports will suffer. At the Johannesburg Market the other day I asked one of the dealers how badly this would affect us. While he could not give a comprehensive scenario, he indicated that if the rains continued, the price of potatoes, for example, could go up by close to 20%.

Scarcity of goods and higher transport costs push prices up.

Now take the combination of oil prices and flood damage,and we are facing a heavy spike in food prices, which to me appear to be the only things that seem to defy gravity.

I have really never understood how economists reach the conclusion that the consumer price index has dropped when food prices at the local family store seem only to go up. The consumer price index is measured by costing a basket of goods, but what goes into it varies from one area to another, of course.

Other possible immediate costs include transport to work and school. The June/July salary increases may be a bridge too far.

In a perfect world, your children would be attending school within walking distance, but the still very poor matric results and some teachers’ poor work ethic forces many parents to seek better facilities outside their residential areas, and this results in more forced ­expenditure.

With an outlook this dire, it may be wise to prepare for the rough times over a few months this year. It is always advantageous to make the needed cuts and changes before the hard times hit.

This gives you a chance to set money aside now so that you can sustain your needs as it becomes more expensive to do so.

Prepare to tighten your belts.

» Diale is a financial planner. He can be contacted on 078 775 0802

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