The major immediate casualty in the aftermath of the double-digit CPIX rise was the bond market, but the ultimate victim will be the man in the street as prices soar into the heady territory last experienced in 2002.

In 2002, annual average CPIX was at a frothy 9.3 percent, with an all-time high of 11.3 percent. Are we headed back to those levels now?

You'll remember that in 2002 the central bank also missed its target as rand depreciation weighed on prices. And this came after the inflation targeting announced in 2000 had started to crimp back inflation, which had been running at double digits for over 20 years. As a result the repo also struck a high of 13.50 percent in 2002. The repo then gradually receded from 13 September 2002, before the current tightening cycle began on 8 June 2006.

Things on the inflation front improved in 2003 as inflation remained consistently within target and this gave the Bank the leeway to cut the repo by 550-basis-points during the year.

The economy grew by just under two percent in 2003, however, as compared with growth of just under 4 percent in 2002. We are now also expecting the economy to grow more slowly this year, while the pick-up may not happen as soon as 2009 as some commentators had expected, although this time around we do have the soccer World Cup to throw into the mix and the massive infrastructure drive that brings.

In 2002 the economy was praised by the IMF for its resilience, as were the country's sound macro-economic and fiscal policies, in the face of a global slowdown at that time.

However, the next phase has set in, this time not so much led by a depreciating rand, but by sky-high food and energy costs.

At the moment this is the concern, and market watchers and the man in the street are getting more and more concerned about inflation expectations in light of these challenges.

For example, analysts who expected April to signal the end of the tightening cycle are now expanding their expectations, indirectly justifying the central bank's move to hike rates again in April despite fears of a slowing economy.

As it stands the flipside argument that key areas of spending have already started to slow in response to the cumulative 450-basis-points increase in interest rates since June 2006 holds, and thus raising rates simply hurts the consumer further.

But with inflation taking to the skies again, the inflation target enters the frame and is in urgent need of special care based on what happened in 2002 and 2003.

Global conditions have also deteriorated and the sudden onset of the electricity crisis has damaged short-term growth potential and confidence.

And it was the short-term area of the bond market that took the immediate hit on Wednesday, losing ten basis points soon after the CPIX release.

In Wednesday's data food, transport costs and education were the chief drivers. With the wage negotiation season about to get started, fears of second-round pressures abound.

Administered prices too are set to increase dramatically

Administered prices too are set to increase dramatically, and all this points to a little more pain for longer.

However, as global action hopefully takes shape to assuage food inflation concerns – Gordon Brown is now strongly on this bandwagon together with the IMF — and a higher base to work off, 2009 may start seeing a slight pullback in the pressures.

Of particular concern right now are second-round and broader inflationary pressures, pinpointed by central bank governor Tito Mboweni ahead of and during the April meeting.

Today's CPIX release confirms these suspicions.

The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, was up 9.8 percent year-on-year in March from 8.9 percent year-on-year in February.

CPIX was expected at 9.7 percent, an I-Net Bridge survey found, with forecasts ranging from 9.2 percent to 9.9 percent and from just 5.5 percent a year ago, but instead came in at 10.1 percent.

It was summed up by a bond portfolio manager as a "shocking, terrible number". Other bond managers were not even available to discuss the situation as they were all locked in emergency discussions.

This is the extent of the concern right now – higher inflation for longer is knocking expectations out and this is also extending the potential impact of rate hikes on rate sensitive areas of the market, including the JSE.

The economic lights are certainly being dimmed again like they were in 2002 and 2003. It took a few years to get the ship on course again, and so we may have another year or so in store of belt tightening before the next cut in rates awaits us.

I-Net Bridge