Prices going to get worse

2008-05-10 00:00

Brace yourself for another fuel price hike next month and don’t expect any relief from climbing food prices, spiralling inflation and high interest rates for at least a year.

Economists told Weekend Witness yesterday that the volatile oil price continues to break records and that some economists overseas have even suggested it could reach $200 per barrel — almost double current record prices. However, local economists believe that this is unlikely and said that the strength of the rand is acting as something of a band aid and ensuring that the upcoming price hike will be marginal.

All agreed that it is still too early in the month to calculate or forecast exactly what the upcoming increase could be.

Goolam Ballim, Standard Bank’s chief economist yesterday warned that South Africans have become rapidly and sharply poorer and can only look forward to a chilly winter. He said there is a strong possibility that petrol and diesel will rise by another 10 to 15 cents in June.

Food, he said, would sustain double-digit price increases for some time to come. He said it will take eight to 12 months for the latest fuel price hike to be fully felt throughout the economy.

With further price increases of basic inputs still in the pipeline, consumers can not expect any meaningful relief until the end of next year, he added.

Ian Marsberg, a macro strategist at ABSA, said it is unlikely that inflation will return to the Reserve Bank’s stipulated three to six percent (it bridged 10% in March) before the end of 2009.

However, fuel will not be the main driver of inflation for long. If Eskom’s full tariff increase is okayed, inflation will rocket and things will not improve before 2010, said Marsberg.

This also holds true for Nicky Weimar, a senior economist at Nedbank, who believes things will get worse before they get better. “For this year, the picture is ugly and it is likely to stay ugly,” he said.

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