Inflation likely to move lower rest of the year

Cape Town - Inflation is likely to continue to move lower through the remainder of 2017, according to Graham Tucker, Old Mutual Balanced Fund manager.

“Despite the Cabinet reshuffle and recent downgrades, we have seen a relatively muted currency reaction and a very different environment to what we saw in December 2015 when the currency plummeted,” he explained at the launch of the annual Long-term Perspectives publication. It is a summary of long-term asset class data compiled by Old Mutual Investment Group’s MacroSolutions boutique.   

“The real problem is SA’s structurally high inflation rate compared to the rest of the world.”

The Long-term Perspectives review sets out how inflation erodes spending power.

“Investors need to be invested in growth assets like equity and property, rather than cash. Cash might make you feel safe in an environment like the one we’re currently in, but history has shown us that it is poor at fighting inflation, especially after taking tax into the equation. Your likelihood of achieving financial freedom decreases the longer you are sitting in cash,” he explained.

Tucker believes a rating downgrade spiral could result in a sharply weaker currency, thereby putting upward pressure on inflation.

“In this environment SA pension funds should be relatively secure given the high exposure to offshore assets," he said.

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