FNB Chief Economist Cees Bruggemans casts his seasoned eye over the latest inflation data.

Bruce Whitfield:
Inflation today, coming in at 10.4 percent, it’s worse than expected, and it is the 13th consecutive month it has been outside the Reserve Bank’s target range. Dr Cees Bruggemans, the chief economist at the FNB, joins us now and it has been a gloomy day in Johannesburg and also gloomy on the inflation outlook Cees, good evening.

Cees Bruggemans:
Yes Bruce, that is the biggest monthly increase in a long time and since 2002 the market hasn't got it this wrong as what we have had today. I mean the consensus was looking for below 10 and here we are getting 10.4. It is disappointing and it points to even higher numbers.

Bruce Whitfield:
We've got the inflation number today on top of yesterday's horrible first-quarter growth figures, the pressures in this economy are building, and they are going to get a lot larger before we get any relief I think.

Cees Bruggemans:
Well yesterday's growth numbers were of course not unexpected specifically the electricity impact came through but yes we do know from the higher interest rates and the loss of purchasing power because of the rising inflation that the household sector is under pressure and we are going to get a much lower growth number this year than what we have been used to for the last four years and then at the same time for the last two years this inflation number has been rising every month and we haven't reached the peak yet so we are double digit and it is still going to go higher than where it is.

Bruce Whitfield:
Can you guesstimate?

Cees Bruggemans:
I work on 12 percent in the second half of this year and that is without an excessive Eskom increase, sizeable but not the excessive of one that was mentioned earlier, and my main focus is on oil and food and I think the pressures there are still coming through and we will have to wait and see how internationally these things work out. CPIX, 12, I think is a target in coming months but we cannot really be sure at what level this peaks out.

Bruce Whitfield:
Let’s assume it goes to 12 and peaks at 12 what does that mean then for interest rates? Certainly there is another one in two weeks time when the MPC meeting meets but what happens after that?

Cees Bruggemans:
Yes we have an uneasy balance of course between a rising inflation rate and a falling growth rate and it is ultimately for the Reserve Bank to explain to us where they would put the emphasis. At least as of last Thursday Mr Mboweni was very strong in the way that he emphasised that his focus is on inflation and that he accepts that there will be slower growth and under these circumstances with the focus then on second round effects and for me that translates basically into wage and salary demands and the manner in which companies pass on these cost pressures they basically are prepared to raise interest rates further. My own projections given say a 12 percent CPIX peak would to expect at least another two interest rate increases, in other words one next month and another one in August, but there are people who then punt still a third one in October and a lot depends on what happens internationally and how it feeds through and a lot depends on how the Reserve Bank and ultimately judges and assesses the growth sacrifice that is in the works. Somewhere out there there is an interest-rate peak as well but it is very difficult to call at this point in time.

Bruce Whitfield:
Dr Cees Bruggemans, thanks very much indeed, the chief economist at First National Bank, for his assessment there.