Worst is yet to come

Rapidly rising food, education and transport prices kept inflation above the Reserve Bank's target for the third consecutive month.

This is bad news for people hoping that the Bank's monetary policy committee will keep interest rates on hold at its next meeting in September.

The Reserve Bank raised the repo rate by 0.25 of a percentage point to 5.75% (and prime to 9.25%) last week in an attempt to keep inflation under control.

Last month inflation was at 6.6%, the Consumer Price Index released by Statistics SA showed yesterday, unchanged from May. But the Bank wants to keep inflation at between 3% and 6%.

FNB analyst John Loos said that for as long as inflation remained outside the Bank's target range there would be upward pressure on interest rates.

"We expect more mild interest rate hikes this year, to a level at which the prime rate ends the year at 9.5%," he said.

Loos pointed to food prices, which increased by 8.83% year-on-year.

"Food prices accelerated rapidly in recent months, from as low as 3.5% in December. Worse still is that, excluding nonalcoholic beverages, food inflation had reached 9.24% year-on-year by June."

Transport prices were 8.6% higher than a year ago and education costs 8.7% more, the index showed.

And now motorists must brace for another rise in petrol prices.

Statistics from the Central Energy Fund point to an average under-recovery of 13c so far this month, which, if the rand/dollar exchange rate and the crude oil price stay at current levels, would translate into a fuel price increase of about 13c a litre.

Nedbank economists say the Reserve Bank is in a "rising cycle" amid low economic growth.

"The implication is that the monetary policy committee will continue to talk tough but will act as moderately as possible," they said.

Both Nedbank and Barclays Capital expect the next interest rate increase to be by a quarter of a percentage point and that it will probably be imposed in November.

Reserve Bank governor Gill Marcus and her monetary policy committee meet every two months to fix interest rates.