[Folks, it appears to me the fake boom, fuelled by massive credit growth is now biting S.Africa. Inflation is really going up fast now. They are talking of another 1-2% interest rate hike in this country before the end of the year. We’ve already had a 1% interest rate hike which has taken even the banks by surprise – I know this because I actually read internal company memos where the CEO admitted that he had misjudged the interest rate hike this year. This is the beginning of S.Africa’s economic WOES… the “boom” you’ve been hearing about is largely a myth… the country is also stuck with land reform, blacks pouring in over the borders and loss of investment due to Zimbabwe. S.Africa’s economy has become overloaded… and I think you’re going to see EITHER inflation flying upwards in S.Africa in the coming year or INTEREST RATE flying up – or a combination of the two. But the ANC’s “fake Good years” are coming to an end. Now, we’re all going to start FIGHTING over the scraps, the bread crumbs of what is left. Jan]

CREDIT demand growth accelerated at its fastest pace in a year last month, while consumer inflation rose above forecasts, setting the stage for further interest rate hikes before the year is through.

This does not bode well for consumers, some of whom may find themselves in a squeeze as petrol and food prices continue to rise, and debt instalments increase, all of which are expected to place a financial strain on over-extended households.

Data released by the Bank yesterday show private sector credit extension (PSCE) growth rose from 23,85% year on year in June.

CPIX (consumer price index less mortgage costs) rose to 4,9% year on year last month from 4,8% the previous month, while private sector credit extension growth surged to 24,68%.

However, growth in M3, the broadest measure of money supply, slowed to 21,15% year on year, from 23,85% in June.

In the month, M3 was up 1,1%, or R13,36bn.

Analysts said it would take a few months before the full effect of the combined 100 basis-point hike in rates of the past few months showed in the numbers.

“Credit seekers have not heeded the warning from the Reserve Bank. The fact that the number (for credit growth) remains stubbornly on the upside is not positive for interest rate prospects,” Eskom treasury economist Kabelo Masike said yesterday.

Meanwhile, Statistics SA figures show that CPIX, the Bank’s targeted measure of inflation, rose from 4,8% in June, and was slightly higher than the expected 4,7%.

Month on month, CPIX rose 1,1%.

Headline inflation, the broadest measure of inflation, was up 5% year on year, and 1% in the month.

“Record-high petrol prices, sharply rising food prices, as well as households’ virtually nonexistent savings imply that households do not have much of a buffer to absorb the impact of rising interest rates,” Standard Bank economist Shireen Darmalingam said.

The combination of these factors was likely to underpin a noticeable slowdown in households’ debt take-up towards the end of the year, she said.

Slower growth in house prices was expected to lead to a tapering-off in the growth of mortgage advances towards the end of the year.

“This is of particular significance since mortgage advances are the largest component of PSCE and one of the main contributors to the robust rise in PSCE over the past few months,” Darmalingam said.

The transport and food categories remained the biggest contributors to inflation in the month.

A 25c/l increase in the petrol price saw the transport component add 0,3 percentage points to the month-on-month rise in CPIX, while food added a further 0,6 percentage points.

Fuel prices are expected to drop about 34c/l next month, bringing temporary relief to households, after prices also rose in August by 31c/l.

“The continued acceleration in inflation and credit extension support our expectations for a 50 basis-points increase in interest rates from the Bank in October, which is expected to be followed by another 50 basis-point increase in December,” Absa treasury economist Monale Ratsoma said.

However, CPIX was still expected to remain within the inflation target band of 3%-6% in the next year, assisted by a firmer rand and lower oil prices, Ratsoma said.

A breakdown of the underlying categories of PSCE shows that mortgage advances rose 30,2% year on year, (and 2,7% in the month) up from 29,8%. Instalment sale credit was up 1,7% in the month, and 18,1% year on year. Leasing finance, supported by the relative affordability of vehicles, rose 1,7% during the month.

Darmalingam noted that imported vehicles were flooding the market, and had helped to contain local prices over the past year, even though a few price increases, albeit small, had started to creep in.

The category for other loans and advances increased 3,6% in the month, and 19,6% year on year.

The rand strengthened by more than 1% to R7,06 against the dollar on the prospect of further rate hikes, while bond yields rose, with the R153 up six basis points at 8,54%, while the yield on the benchmark R157 bond rose by four basis points to 8,66%.

Source: AllAfrica.Com
URL: http://allafrica.com/stories/200608310364.htm…/p>