Johannesburg - Chief economist of Rand Merchant Bank, Rudolf Gouws, said on Wednesday that a "substantial fall" could be
expected in inflation during the course of 2009.
"There a few signs of light in the inflation picture," said Gouws.
He pointed out, for example, that food prices at the agricultural level were showing signs of coming off and meant that an inflation peak was "pretty close".
On the inflation reweighting, he said that it was sad in some respects that this had clouded the broader issues at play.
He submitted that an internal report by his organisation two weeks before Investec had reported that the weightings would bring inflation down and so this was nothing new, but highlighted that Stats SA needed a full year to measure new products to be included, a position which placed them "between a rock and a hard place".
"They cannot suck their thumbs on the prices of new things," he said.
Gouws also wondered whether the central bank had not implicitly already taken the effect of these weightings into account when making their repo calls in the past.
On the upcoming August 14 rate decision, he said a point was being reached where it may be appropriate for the MPC not to raise rates.
Then he foresees that at some time next year - possibly as early as August - the first cut in rates could take place.
However, he immediately highlights that "fundamental imbalances will still be substantial". This includes electricity price rises, but of particular concern to him is the current account deficit at 9% of GDP.
"If you are running a deficit of that order you need to attract foreign capital and there are risks, like commodity prices with us as a commodity exporter, and then you have politics and social stability concerns," he said.
No gifts from Mr Manuel
Gouws said that R3bn of foreign capital a week is needed to
fund the current account deficit, although the country has been fortunate "and will continue to be fortunate, but there is a risk".
He also says that domestic savings are inadequate in a R2 trillion economy, highlighting the gap between investment and saving - another measure of the deficit.
Of concern is that South Africans have not saved despite tax cuts, with the cuts being spent rather than saved.
He added: "I don't expect gifts from Mr Manuel in February."
However Gouws said: "As things like power are addressed the potential growth rate will lift in due course."
He said while stagflation - low growth and high prices - is not inevitable, it is a danger and therefore it is so important to "stick to our guns" on the broad macroeconomic policy issues.
He said he was pleased to see some of the new ANC leaders like Gwede Mantashe speaking sensibly on these broad issues.
Gouws said he did not see the country entering a recession if inflation was peaking, as he expected, although it would "feel like a recession", especially in certain areas.
He said this time infrastructure would be sustaining the economy, possibly preventing past mistakes where capital was formed going into a recession.
He was speaking at The Forum at an Association of Corporate Treasurers of Southern Africa (ACTSA) function to commemorate its 20th birthday.
- I-Net Bridge