Hold onto your wallets we are in for a bumpy ride!
As mentioned before I am a bit of a couch economist, trying to make sense of the financial speak that seems to confuse us all in terms of inflationary pressures, trade deficits etc. My style is to try to cut through all of this to deliver a prediction of what we can look forward to as far as the economy.
Currently there is no one out there who will disagree when I say that things have become really tight out there. This is true when it comes to any inflationary environment, specifically when the reserve bank has agreed policies are far as inflation targeting goes (3-6% in the case of South Africa). I spend time trying to compare what history has shown us in terms of the effect on the economy when the Governor raises interest rates.
Complicating the issue as we all know is the effect of oil, the Eskom drag as far as infrastructure that they will need to put in as well as the economies of the BRIC (Brazil, India, Russia and China) that are all growing at 8% plus per year. Remembering that two of these countries account for almost half of the world’s population so any time they demand something the effect is going to be massive (steel, oil, cement etc)
Coming to my point. Part of this post is a graph which indicates the current inflation rates since the beginning of this year to May 2008. As you will see the trend is upwards and this does not include the Eskom effect. My view would be that we are most certainly in for a further rate increase and more than likely another before the end of the year. What will those be I am not sure, but certainly a full basis point may be on the cards.
So once again from the couch, clear your small debt rapidly, because these attract higher interest charges in terms of percentage points. Then work through the big stuff. Lay off the credit card or debt purchases and negotiate negotiate!!