Some good news

Abdul Milazi

Abdul Milazi

Good news for consumers is that they can expect interest rate cuts sooner than they thought.

This is according to Rian le Roux, head of economic research at Old Mutual Investment Group (Omigsa), who yesterday said that the slowdown in economic growth was a sign that inflation was nearing its peak.

Addressing a press conference at the Saxon in Sandhurst, Johannesburg, yesterday, Le Roux said inflation was expected to peak at 13,5percent in the next few months, then gradually decline and reach the the government's three percent to six percent target by the third quarter next year.

"There are signs that food inflation may be easing, the rand is holding up well and the lower oil price is a short-term bonus," he said.

He said the recent interest rate hikes had succeeded in slowing down consumer spending, while the planned revision of the inflation basket next year could also lower inflation by about 1.5 to two percentage points, compared to forecasts using the existing weights.

Stats SA recently announced that the planned downward revision to the weighting for food is likely to lower the level of inflation when the new indices take effect next year.

The weighting for food - the main culprit for inflation - will fall to 16,26percent from 25,66percent in the CPIX gauge monitored by the Reserve Bank for interest rate decisions.

"Taken together, the strong rand, the coming revamp of inflation data and the sharp slowdown in economic growth have contributed to a notable lowering of our inflation forecasts for 2009. What this means is that we can possibly look forward to an earlier decline in interest rates in 2009 than we previously expected," said Le Roux