Ethel Hazelhurst
Inflation is falling globally, according to Johan Els, a senior economist at Old Mutual Investment Group SA. At a presentation in Johannesburg yesterday, he said more moderate price increases should help consumers and policymakers, particularly policymakers in emerging markets with room to cut interest rates.
He cited China as an example – inflation fell from 6.5 percent year on year in July last year to 4.1 percent last month. Els said China “could ease monetary policy considerably if needed – a process which has already started”. And he noted that China had a budget deficit equal to only 2 percent of its gross domestic product and a “relatively modest stock of debt”.
These factors would give the Chinese government leeway to avoid a sharp slowing in its economic growth, Els said. There have been concerns that the country could experience a deeper than expected slowdown, stalling the global recovery.
The International Monetary Fund forecast yesterday that China would grow 8.2 percent this year from 9.2 percent last year. But Els said: “China is good at engineering a soft landing.”
South Africa was lagging on the inflation reduction front due to rising food and energy prices, but “underlying inflation and consumer goods inflation rates are still contained”, he said. And the global trend of lower inflation along with a more stable rand would eventually work through to domestic prices.
Els predicted that South Africa’s food inflation would peak in the next six months, while overall inflation would peak within four months.
Last month food inflation stood at 11.6 percent year on year – largely due to meat inflation at 16.7 percent, and bread and cereals at 13.1 percent.
Overall inflation was 6.1 percent, just over the ceiling of the Reserve Bank’s 3 percent to 6 percent target range.
Despite high inflation, Els predicted domestic interest rates would remain low “for some time to come”. He cited “subdued growth and slow job creation, together with sustained low rates globally”.
Els said there would be no change in the repo rate until next year.
On global growth he spoke of “huge risks” but said there were more likely to be upside surprises than down this year. He predicted the EU recession would be mild. And he noted that the US had posted “better-than-expected (economic) data over the past month”.
In South Africa growth impetus would come from spending on capital projects. Els forecast growth in fixed investment of 4.5 percent this year from 3.8 percent last year.