Bold inflation and interest rate prediction from Wayne McCurrie

FNB Wealth and Investments’ Wayne McCurrie predicts that inflation is going to plummet by the end of 2023, surprising virtually everyone.

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) increased interest rates by 25 basis points (bp) in January 2023, taking the country’s repo rate to 7.25%.

Reserve Bank governor Lesetja Kganyago said the inflation outlook shows strain, with headline and core inflation likely to remain under pressure with risks on the upside.

He added that food price inflation is expected to remain high for the year, given the prevailing conditions.

Headline inflation in 2022 came out at 6.9%. The bank’s forecast of headline inflation for 2023 is unchanged at 5.4% and is slightly higher at 4.8% for 2024.

On Wednesday, the Federal Reserve in the United States also increased interest rates by 25 basis points.

Federal Reserve Chair Jerome Powell said interest rates would likely end up higher than investors expected, and he pushed back on cuts that markets had priced in for this year.

Powell said policymakers foresee a “couple” more rate increases from the new target range of 4.5% to 4.75% as part of their battle against inflation.

McCurrie has a different outlook, predicting that global inflation, including in South Africa, will plummet by the end of the year, especially in the second half.

“This is going to surprise virtually everyone on the downside,” McCurrie said, adding that he expects aggressive interest rate cuts starting in the last quarter.

He does not expect inflation and interest rates to go back to levels seen after the global financial crisis or during the Covid-19 pandemic.

Instead, he expects inflation and interest rates to decline to normal levels after peaking this quarter. “That is still an accumulated 2% in the USA and 3.5% in South Africa,” he said.

Translating it into an investment outlook, McCurrie said bonds could very easily outperform equity globally.

“Bond yields are still high and, ignoring tax, give a great yield and a strong possibility of capital gains,” he said.