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Johannesburg - The average consumer price index (CPI) in 2011 is likely to be only slightly higher than in 2010, Moody's analytics economist Mekael Teshome said Friday.
Inflation is expected to average 4.4% in 2010 after reaching 7.1% for the year as a whole in 2009.
He says the fact that inflation is moving away from the lower end of the SA Reserve Bank's (Sarb's) 3% to 6% target range diminishes prospects for another interest rate cut.
South Africa's repo rate - the rate at which the Reserve Bank lends to commercial banks - has been reduced by 650 basis points since December 2008 to a current level of 5.5% basis points.
CPI rose slightly to 3.6% in November from 3.4% in October.
Teshome says the slight rise in consumer prices in November confirms that inflation has passed its cyclical low point.
Moody's Analytics expects the "pass-through" effects of the strong rand to wane while commodity prices are seen increasing, adding upward pressure on prices.
"However, growth below potential and considerable slack in the labour market should keep inflation comfortably within the Sarb's target range. Risks to the inflation outlook are balanced," Teshome said.
Wage settlements could push prices up more quickly than expected, Teshome said, adding that low rates in developed countries should send more capital into South Africa, pushing up the rand and cooling inflation further.
The door for another interest rate cut could be opened if growth disappoints and Europe's sovereign debt troubles affect South Africa more than expected, Teshome concluded.
Inflation is expected to average 4.4% in 2010 after reaching 7.1% for the year as a whole in 2009.
He says the fact that inflation is moving away from the lower end of the SA Reserve Bank's (Sarb's) 3% to 6% target range diminishes prospects for another interest rate cut.
South Africa's repo rate - the rate at which the Reserve Bank lends to commercial banks - has been reduced by 650 basis points since December 2008 to a current level of 5.5% basis points.
CPI rose slightly to 3.6% in November from 3.4% in October.
Teshome says the slight rise in consumer prices in November confirms that inflation has passed its cyclical low point.
Moody's Analytics expects the "pass-through" effects of the strong rand to wane while commodity prices are seen increasing, adding upward pressure on prices.
"However, growth below potential and considerable slack in the labour market should keep inflation comfortably within the Sarb's target range. Risks to the inflation outlook are balanced," Teshome said.
Wage settlements could push prices up more quickly than expected, Teshome said, adding that low rates in developed countries should send more capital into South Africa, pushing up the rand and cooling inflation further.
The door for another interest rate cut could be opened if growth disappoints and Europe's sovereign debt troubles affect South Africa more than expected, Teshome concluded.
