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24 August 2004 Angelo Coppola

(25.8.04)And as such says Theo van der Lingen at PSG Fund Managers should still be viewed as in dis-inflationary territory.

It will be several months before we can judge fairly the effect of the Reserve Bank's recent decision to cut interest rates by 0.5%.

While some welcomed the growth-stimulating effect of softer policy, many have spoken of encouraging an already spendthrift consumer and of increasing the risk of a housing market bubble. I personally don't think the latter is much of a problem.

This week's consumer and producer price inflation data for July will probably be modest. High oil prices and the possibility that the rand could weaken might have a negative effect on inflation later this year.

Stats SA will release consumer price inflation numbers today. I expect the year-on-year increase in CPIX, the Reserve Bank's inflation target variable, at around 4.%. This is higher than the market consensus forecast of 4.3% (Reuters survey) and 4.4% (Bloomberg survey).

Some price categories have continued to rise, but the 17c per litre fuel price drop and the strong rand, together with stable food price inflation could have had a positive effect on the inflation rate.

While municipal rates have continued to increase at a pace well ahead of inflation, other services are tending to put less upward pressure on inflation. Electricity tariffs only increased by.,5% this year, while water tariffs rose 5.7%.

The rental market has been adversely affected by the boom in the housing market and the 6% decline in interest rates over the past year.

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