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'Inflation unlikely to decline any further'
January 27 2004 at 05:30PM
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By Mariette le Roux
The decline in inflation seems to be at an end, and further interest rate cuts are unlikely, economists said on Tuesday.
December's four percent CPIX inflation rate probably signalled the bottom of the declining interest rate cycle, said African Harvest Fund Managers chief economist Adenaan Hardien.
"The question is not whether the Reserve Bank will cut rates again, but rather how soon it will start hiking rates," he said in a statement.
| 'A hike during the fourth quarter of this year seems a fair bet' |
"At this stage, a hike during the fourth quarter of this year seems a fair bet, although a hike as early as the third quarter cannot be ruled out."
Rising food and oil prices were among the factors expected to impact on consumer inflation.
Statistics South African announced earlier that year-on-year consumer inflation less mortgage costs (CPIX) slowed to four percent last month from 4.1 percent in November 2003.
This brought to 6,8 percent CPIX for the year 2003 - 2,5 percentage points lower than 2002's figure, but 0,2 percentage points higher than that for 2001.
CPIX is used by the South African Reserve Bank to determine inflation targets - set at between three and six percent for last year and this year.
| 'It seems the easing cycle has now come to an end' |
The main contributors to the December CPIX figure were annual increases in housing (excluding interest rates on mortgage bonds), medical care and health expenses, food, household operation and education, Stats SA said.
The headline inflation rate - the consumer price index (CPI) - was 0,3 percent last month, compared to 0,4 percent in November.
"Interest rates on mortgage bonds decreased with five percentage points from December 2002 to December 2003. This mainly accounts for the significant difference between the inflation rates in the CPI and CPIX," Stats SA said.
The annual percentage change in food prices was 2,6 percent last month - lower than the 3,2 percent recorded in November.
Metropolitan Asset Managers economist Rejane Woodroffe said the good news on inflation "now seems to be over".
"It seems the easing cycle has now come to an end. We expect the next move in interest rates to be up, albeit only towards the latter part of the year."
Absa senior economist John Loos also expressed the view that the declining trend was at an end.
"We believe that the end is nigh, and that increased pressure on the rand, coupled with food price inflation, will cause the start of an upward trend as from early 2004."
The Reserve Bank would be reluctant to cut interest rates any further, he added. - Sapa
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