Johannesburg - Interest rates will probably be hiked in the fourth quarter of this year when the impact of factors like the high oil price results in second-round inflation.
This is the opinion of Citadel economist Dave Mohr. He said the extent of first-round inflation can already be seen and second-round inflation is busy unfolding.
In his view an interest-rate decision would be an attempt to counteract the growing effect of the second round.
First-round inflation was caused by increases in commodity prices – mainly of fuel and food – as well as administered prices.
These rising prices will in time also impact consumer prices, second-round inflation, when rising costs feed through to consumer prices.
Second-round inflation has so far principally been fuelled by strong household demand.
Consumers are currently responsible for brisk vehicle sales, as well as healthy retail sales.
Mohr believes consumer demand will remain strong because of rising household credit levels.
Indeed, household debt as a percentage of disposable income is still high compared with historical levels of just under 77.6%, but Mohr does not believe this to be the major factor affecting consumers' credit decisions.
What matters to consumers is how much it costs to repay their debt, he said. According to the Reserve Bank’s Quarterly Bulletin household debt-servicing costs were 7.2% in the fourth quarter. The 2008 figure was more than 12%.
Mohr said there was room for households to borrow more.
Salary increases had also fired consumers' buying appetite. Wage inflation in South Africa has generally ignored the recession. Mohr believed the problem to be more acute in the public sector.
Wage inflation in the public sector was in many cases higher than in the private sector.
Mohr reckoned that interest-rate increases would be announced in the second half of the year and expected the next cycle of increases possibly to result in hikes of 4 to 6 percentage points.
Investec Asset Management director Jeremy Gardiner believed that if the rand weakened significantly later this year, this would have a further negative impact on inflation.
At this stage, he said, the group expected to see two interest-rates hikes of 50 basis points each before year-end.
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