The tariff hikes requested by electricity parastatal Eskom will push up the inflation rate by between a half and one percentage point, Azar Jammine, chief economist of Econometrix, said on Friday.
He was addressing the annual conference of the SA Chamber of Commerce and Industry (Sacci) in Johannesburg.
Earlier this week, Eskom announced that it had asked the National Energy Regulator of SA to approve an increase of 45% every year for the next three years.
“As a consequence, we’ll be very lucky to stay in the SA Reserve Bank’s inflation target of three percent to six percent for any length of time,” Jammine said.
Inflation might fall within the SA Reserve Bank’s (SARB) target for the second quarter of 2010, it would not remain there for very long and would soon rise to around 7%, he said. “And this means that interest rates cannot come down anymore — in fact they’ll start rising.”
SA’s economy was weak “and if we don’t want to kill it, an alternative would be to raise the interest rate target band for as long as the electricity price hikes last — but with this view I’m in the minority”, he said.
Commenting on the political environment, he said people were “still nervous” about the government’s leftward shift in economic policy. “[President Jacob] Zuma had a lot of support in the election campaign from the SA Communist Party and the Congress of SA Trade Unions and he identifies with the people on the ground, the people in the rural areas.”
Jammine said there was a perception that government would assist the poor at the expense of the rich and of business. However, Jammine said the greatest challenge facing SA was the shortage of skills. Unless skills were developed, he said, poverty, unemployment, inequality and crime would persist.
While economic growth would pick up in the short term in SA, Jammine said he was concerned about the longer term. “That is unless education and skills are improved. If they’re not we will be very vulnerable. And already we are losing out compared with some other African countries,” he said. — Sapa
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