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Nedbank warns of higher fuel, food prices

Feb 02 2011 17:48 I-Net Bridge

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Johannesburg - Domestic food and fuel prices are expected to rise further this year, according to the Nedbank Group [JSE:NED] economic unit.

However, economist at the bank Carmen Altenkirch said the effect on inflation will be limited, with inflation still forecast to remain below the upper limit of the SA Reserve Bank's (Sarb's) target.

Consumers need not panic just yet, as the bank said interest rates are likely to remain unchanged until the second quarter of 2012.

Some economists predict rates could rise in the last quarter of 2011 or the first quarter of 2012.

A spike in global food prices combined with a weaker rand could place the inflation target in jeopardy, Altenkirch said.

Altenkirch said that given the bank's reluctance to react to external shocks, it was unlikely to respond by hiking interest rates too quickly.

The Sarb said in January that domestic growth would remain below potential, and that there were risks to the outlook.

Altenkirch said international food prices rose sharply in the final months of 2010 on the back of strong demand for commodities as an asset class.

Upward pressures on agricultural prices have also emanated from severe droughts in Russia, rain in Canada and Pakistan, and flooding in Australia.

"However, the impact domestically has been muted so far due to the strength of the rand," Altenkirch said.

Nedbank's forecasts are for food inflation to increase and end the year at about 6%, but that it poses no immediate threat for inflation.

Despite the recent rise in Brent crude oil to about $100 per barrel, Nedbank said this should not be too much of a concern as neither the forward market nor most forecasters predict that the oil price will spike this year.

This was due to still high oil stock piles and ample spare capacity in oil-producing states.
sarb  |  interest rates  |  inflation  |  food prices  |  petrol price


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