Inflation bug likely to hurt again

2008-01-15 00:00

While the country’s slower growth levels in 2008 will put the final touches to a picture that has been in the making for some time now, it is probably the high inflation bug that will continue to hurt ordinary South Africans this year.

The usual destinations dominate the national economic landscape when one lays out a map for the new year.

After more economic data from Stats SA this month (retail trade sales; private sector building stats; civil cases for debt stats etcetera.), the South African Reserve Bank’s (Sarb) Monetary Policy Committee will meet on January 30 and 31.

While weaker economic data (like soft manufacturing and new vehicle sales data) may convince the Sarb to keep rates unchanged so as not to hurt economic growth prospects, consistently high inflation coupled with the revelation of the latest credit growth figures may strengthen the case for another 0,5% rate hike.

January 31 is also a significant date as it marks the final deadline for e-filing of tax returns.

Finance Minister Trevor Manuel will deliver the national budget speech on February 20, mapping the way forward on issues ranging from corporate and individual tax regimes to government spending and social security.

Last year’s budget featured individual tax relief; the scrapping of tax on retirement funds; changes to the secondary tax on companies; more funding for the 2010 Fifa World Cup and extra spend on police, prisons and courts.

Finance MEC Dr Zweli Mkhize will unveil the KZN budget in early March. Mkhize last year announced an impressive spending spree on infrastructure, as well as plans to boost the financing of a variety of different business projects across the province. The budgets for provincial departments will also come under the spotlight, with social spending (Education and Health) set to dominate the agenda.

The painful topic of inflation will force consumers to tighten their belts for most of the year.

The general view is that consumer price inflation should touch the 8,5% mark when the figures are released in a few weeks, easing in the third quarter of the year.

High fuel prices are likely to remain for some time, on the back of high oil prices — but a strong rand will help to soften the blow. Some economists have predicted that oil prices will be volatile, trading in the $70 to $120 range.

In a climate of high (global) food inflation and fragile agricultural output, high food inflation is likely to remain a concern, particularly when one adds in soaring transport costs.

While business confidence levels remain high, a further moderation is very likely throughout 2008.

The South African Chamber of Commerce and Industry has noted that inflationary expectations, slower growth, a tight fiscal position, infrastructure bottlenecks and the serious crime threat will all contribute to a nervous climate.

Finally, many analysts believe that the equities “party” or bull-run is over, with the market set to perform more moderately in 2008.

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