Inflation has shot up to its highest level since the 2008 economic downturn and South Africa should brace itself for further increases, especially in the agriculture sector, said Econometrix chief economist Azar Jammine on Friday.

Speaking at a BMI Building Research Strategy Consulting Unit strategic forum, he noted that the agriculture sector’s current 25% inflation would result in higher food prices throughout the year.

The drought currently facing the country had resulted in maize and wheat prices increasing by 200% and Jammine warned that South Africans should expect food inflation to increase throughout the year.

He noted, however, that the 9.4% electricity tariff increase, implemented on Friday, was significantly less than the 16% that Eskom requested. “Other good news on inflation is that university fees will not rise, so inflation will be 1% less than it would have been,” he said.

Jammine predicted that the petrol price would increase by 92 c/ℓ next week, incorporating a 30 c/ℓ increase in the fuel level.

“Statistically, that will result in a sharp fall in the inflation rate. Over the next two months, inflation will come down from 7% to 6%,” he added.

Jammine further noted that the rand was heavily oversold and that, theoretically, it should be R9.50 to the dollar on purchasing power parity terms, instead of the current R16.

“One factor that could cause it to strengthen was if President Jacob Zuma was recalled from his current position,” he said, pointing out that the rand had strengthened on Thursday, after the Constitutional Court ruling ordering Zuma to repay State money spent on his private homestead.

He highlighted that a Presidential recall would reduce South Africa’s chances of being downgraded by credit ratings agencies.

Jammine added, however, that the current state of South Africa’s economy was not only attributed to Zuma’s actions, but that it also had to do with the international economy. He attributed the weakness of the global economy in recent years to the global financial crisis and the economic slowdown in China.

“[Factors] challenging the economy include a major decline in global economic activity, strong recovery in the face of low oil prices, population growth and sluggishness with volatility.”

Further, Jammine highlighted that the International Monetary Fund said public debt levels in advanced economies would not get back to previous government debt levels until 2030 and that there was very little scope for fiscal stimulus.

“They are keeping interest rates at historically low levels so as not to pay more interest on the big debt pile that they have,” he said.

He predicted, however, that the US would soon be prompted to slowly raise interest rates, as wages were starting to edge up, though US unemployment had fallen to its lowest level in a decade.

World confidence showed that the worst downturn in the economic climate was in Asia and that the devaluation of the yuan was making life more difficult for South Africa’s economy, as Chinese products were becoming cheaper.

Jammine said Chinese imports were down 15% as China wanted to shift direction, reduce investment and increase consumption. There was also less demand for raw materials, which affected South Africa directly.

“If Zuma remains in office until 2019, the rand will stay at R15.76. It will not weaken a lot further, as it is already incredibly weak,” he concluded.