Johannesburg - Next year Eskom will direct the course of the South African economy.
The national electricity supplier wants to hike its tariffs by 35% a year over the next three years, which will not only arrest economic recovery, but also cause a rise in inflation.
According to Business Unity South Africa, this could depress economic growth by between 0.3 and 0.7 percentage points over the next three years, while pushing up inflation 0.3 percentage points.
This is a significant impact because economists expect between 2% and 3% economic growth. Treasury itself expects net growth of 1.5%.
The Reserve Bank continues to expect inflation in the second half of next year to fall sustainably to within its target range of 3% to 6%, and then to remain there till the end of 2011.
Most economists, however, warn that because of Eskom's plans inflation will climb to above 6%, and then not fall back within the target range soon.
Christie Viljoen, an economist at NKC Independent Economists, says that inflation should fall in the first couple of months of 2010, after which a combination of base effects and rising international commodity prices will push it up again.
From the middle of the year higher electricity prices will result in the country again seeing, somewhere in the second half of the year, inflation of above 6%.
According to Nedbank economist Isaac Matshego, more expensive electricity in 2010 could add up to one percentage point to inflation, and in the medium term between three and four percentage points.
He also cautions against the possible inflationary impact of the Fifa 2010 World Cup soccer tournament.
Concerns like retailers and hotels, he says, will be increasing their prices for the tournament.
Airlines have already raised their ticket prices for flights during the matches. The most important question is whether they will drop them again afterwards.
The prospects of further interest rate cuts are becoming increasingly slim.
Viljoen says that with the outlook of rising inflation and economic growth, the next adjustment should in fact be upwards - possibly late in 2010.
Matshego reckons the next rate move will only be at the beginning of 2011.
But, in its forecast for the year 2010, Bank of America Merrill Lynch says that between August 2010 and the year-end the country could see interest rates increasing by 1.5 percentage points.
However, most local economists do not expect a rise of more than 0.5 percentage points.
- Sake24.com
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