ECONOMY
Inflation 'will breach 6%'
Posted Fri, 11 Aug 2006
Consumer inflation excluding home loans — CPIX — is expected to breach the six per cent level next year, the University of Stellenbosch's Bureau for Economic Research said on Thursday. "However, it is likely to be a one-off spike in inflation," the bureau said in its regular quarterly report. CPIX should decline to five per cent by the end of 2007. Producer price inflation was projected to average 6.5 per cent in 2007, mainly due to oil price and exchange rate depreciation pass-through effects. The BER said it anticipated a further 50 basis points increase in the repo and prime rates before the end of the year. Long-term interest rates were already discounting this prospect. A four per cent real GDP growth rate remained a realistic prospect over the short term. The South African economy was likely to shrug off the effects of the rate hikes that have already taken place this year, a depreciating currency, and emerging market jitters. It said it
expected "resilience" in the domestic economy on the back of healthy structural business cycle characteristics and a competitive boost to manufacturing activity. Financial reactions "should be of a contained nature". The consumer sector was likely to cool down without undue harm to the fixed investment drive in the financially healthy business sector, while public sector infrastructure fixed investment spending also continued to accelerate.
Sapa
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