The worst is still to come, say economists

South Africans, already hard-hit by spiralling food and fuel prices, should brace themselves for further inflation as another interest rate hike and a record fuel price rise can be expected next month, economists have said.

And it was also time for the government to consider the high taxes for little return that the country's inflation-battered middle class was forking out, which was a contributing factor to emigration of the rich, T-Sec economist Mike Schussler said. Schussler said that commodity prices, especially diesel, which farmers and manufacturers relied on to produce goods and get them to market, had "gone wild", contributing to the food price hikes.

Schussler said consumers should brace for further fuel prices hikes next month and could expect to pay 40 cents more for a litre of petrol, bringing the price to just more than R10, and 60 to 70 cents more for diesel, which would hit a record R11 a litre mark.

"I think we will see an end to inflation, but it's very difficult to say when in an era where commodity prices have gone wild. We don't know where inflation is going to end, we are
all guessing a bit. Food commodities are on their way up, it's a concerning episode," Schussler said.

"I have never seen prices this high. The European Union has more diesel than petrol cars. People are buying diesel generators to cope with Eskom's loadshedding and increasing the demand for diesel.

"Farmers use diesel in their tractors and it is just costing them more," he said.

Farmers have also cautioned that higher global input costs - including fuel, fertiliser, seed and pesticides - were threatening to push many from their ploughs in search of more lucrative businesses, which could lead to food shortages, particularly of milk and potatoes. Efficient Group economist Fanie Joubert said an interest
rate hike of 100 basis points was possible in June.

"It is definitely a possibility given the fact (Reserve Bank governor Tito) Mboweni said we could get an emergency MPC (monetary policy committee) meeting, but we think it will be too little, too late. They should have started earlier and should rather go up 50 basis points in June and 50 in September.

"We are already seeing strong occurrences of second round inflation effects.

It's a toothless Reserve Bank, all it can do is try to address inflation expectations going into the wage negotiation cycle, given the drain that interest rates will have on the market," he said.

Joubert said that private sector credit extension was up 22,5 percent in April 2008, compared with last year.

Schussler said the government was also exploiting the middle class through high personal income and property tax.

"Property rates are going up and that is going to be a further shock for consumers, on top of the petrol price."We are really taxing our middle class and they are not given anything back. The rich can (emigrate) and then we will find out what poor really is," Schussler said.

Article by: Lyse Comins - www.themercury.co.za