Tony Twine, an economist at Econometrix consultancy in Johannesburg, yesterday said the wage settlement between government and labour had raised the spectre of inflation.

Tony Twine, an economist at Econometrix consultancy in Johannesburg, yesterday said the wage settlement between government and labour had raised the spectre of inflation.

"It could potentially fan the flames of price increases, with too much money chasing the same amount of goods," he said.

Other unions such as those representing mineworkers, who are demanding increases of up to 20percent, might also be tempted to demand wage hikes far above the rate of inflation, he said.

That could start a vicious cycle that would hammer the entire economy.

Twine said the 7,5percent across-the-board increase alone would have little effect on inflation, but additional increases far above the rate of inflation would "clearly be asking for trouble".

Elna Moolman, an economist at Standard Bank, warned that more high wage demands would create a "wage price spiral".

The inflationary effect of higher wages "put price pressures on companies' input costs, that in turn would force them to raise prices", said Moolman.

That would add further fuel to the inflationary fire, which economists are now closely monitoring lest it start raging out of control.

Government economist Vuyelwa Vumendlini said the total package would cost an extra R15billion. That excluded a new salary scale for professionals in the civil service that will cost the taxpayer a further R50billion.