How much will inflation fall?

By Staff Writer
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How much will inflation go down by?

The new inflation data will be released by Statistics SA on Wednesday.

There has been a change to the basket of goods that is used to measure inflation.

The new basket should have the effect of lowering the inflation rate. It has also been redesigned to better separate mortgages out, the list of changes and why can be found on the Statistics SA website.

The Mail and Guardian came in with a speculative piece about how much various economists expected the inflation rate to drop by.

The rate is expected to drop not only because of the changes to the basket used to work it out but also the fact that the upward inflationary spiral that has been a round for some time now, appeared to have turned the trend and to have started heading consistently down, late last year.

The article took a look at the various scenarios that could play out. They based their research on a Reuter's poll that came out last Friday. The poll suggested that of the 19 economists interviewed a consensus on CPIX of 10.4% was reached.

This would be the lowest level that inflation has been at since April 2008.

Some economists saw it dropping further and faster with the possibility of inflation being within the 3%-6% band already by May. It was a policy of inflation targeting that caused all of the interest rate hikes, when inflation was out of that band for so long.

The new headline CPI inflation figure weights food as a lesser portion of the basket now, which should have a major effect as food is a big driver of inflation.

The article then looked at predictions of a rate cut coming and some were even expecting a full 100 basis point cut.

Business Day looked at the rising costs of fruit and veg and how food inflation is soaring. They noted that retail giant Pick n Pay was stepping in and insisting that price cuts be passed on to the consumer.

This sentiment was further followed up in another article by Business Day. The long cycle of interest rate hikes has changed, the markets are suffering and instead of growth in many areas we shall see contraction.

The good news though is that with inflation going down we should see a bit more spending money in our pockets.

It takes time for these effects to be felt in the economy and as in the case of Pick n Pay who understand consumer price sensitivity, they know that the cuts need to be passed down to consumers rather than to a round of profit taking.

However not all retailers will pass on price decreases to your pocket, so until such time as the economy stabilises again, the best thing to do is to hold on tight, keep your budget rolling and set up a savings account as a buffer against anything unexpected happening. 

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