Be ready for a tough year financially
Unless you are a high-income earner with little debt, the year ahead could be a tough one as inflation is expected to continue to rise in the short term.
January 12, 2008
By Laura du Preez
If you are struggling to keep your head above water financially now, it's time to implement some corrective measures, because difficult times are likely to continue, with some relief likely only towards the latter half of the year.
If you have incurred a lot of debt, your most immediate danger is keeping up high debt repayments while the cost of living increases.
Arthur Kamp, Sanlam Investment Management's investment economist, says while there are still some concerns that interest rates may be raised again, the good news is that economists believe the peak of the interest rate cycle is in sight.
Kamp says we must be prepared for the CPIX inflation rate to continue to rise in the short term to as much as 8.5 percent. The latest rate for the year to the end of November is 7.9 percent.
The Reserve Bank's Monetary Policy Committee, which decides on interest rate moves, is due to meet again at the end of this month, but signs that consumer spending is slowing - such as fewer new vehicle sales - should allow the committee to leave rates unchanged, he says.
Kamp says CPIX should start to slow this year, as long as consumer spending moderates and the rand does not weaken significantly.
However, if inflation does slow as expected, it is still not likely to be back within the Reserve Bank's target of three to six percent before September or October and only then will the central bank consider cutting interest rates, he says.
So, you can expect your debt repayments to stay high for most of the year ahead. In addition, Kamp says with inflation continuing to rise in the short term, the real (after-inflation) growth in your income is likely to be squeezed unless you get a big increase during the year.
If you have a home or vehicle loan, your repayments will have increased eight times in the past two years, and higher food, transport, electricity, education and medical expenses are probably also putting your finances under pressure.
Source: http://www.persfin.co.za/index.php?fArticleId=4203435&fSectionId=596&fSetId=300
Be Ready for a Tough Year Financially
