Further inflationary pressure is to come in South Africa, warn global analysts Moody's Economy.com.

The analysts point out that the government has announced that it will raise the price of gasoline by 6.2 percent on 7 May, while state-owned utility company Eskom Holdings is seeking to raise tariffs 60 percent this year.

There are also growing concerns that inflationary expectations are becoming ingrained and second-round effects are emerging.

"In its May Day message, the Congress of SA Trade Unions called for unions across the country to ensure that wage demands fully compensate workers for the impact of inflation. Steel and engineering workers are threatening to strike if employers do not reopen wage negotiations in light of inflation's recent surge," note the global analysts.

In turn, they say South African Reserve Bank (SARB) Governor Tito Mboweni warned last week that interest rates might need to increase from the current 11.5 percent to stem inflationary pressures and prevent a wage-price spiral.

"The SARB may even act before its next scheduled monetary policy meeting on 11 June," they add.

Greater living expenses, combined with higher interest rates, will only aggravate household indebtedness.

"Consumer spending will certainly take a knock this year. Added to that, business activity has been hit by electricity shortages. First quarter GDP figures due out on 27 May are expected to reflect such difficulties," say the analysts.

Moody's Economy.com is forecasting growth this year of 3.9 percent, down from 5.1 percent in 2007. Official forecasts are for a four percent expansion.

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