Inflation to rise above 7% in second quarter 2012 says economist

Inflation will rise above 7% in the second quarter of 2012, according to Investment Solutions economist Chris Hart.

Speaking at a briefing in Johannesburg on Tuesday, Hart said he had made this prediction based on the fact that the rand would weaken. 

"The strength of the rand has up to now kept inflation down." 

Hart also saw the bond market "struggling" next year as rising inflation and low yields would put this asset class against the ropes. 

"We usually go to bonds - and also cash - because we're seeking refuge from risk." 

However, both bonds and cash would take a step backwards. 

"Bonds and cash will start to become the centre of risk because of the debasements of currencies and the levels of yield." 

Volatility and uncertainty would impact on the exchange rate as every country wanted a weak currency to boost exports. 

"With currencies, everyone will be on a race to the bottom." 

Hart added that the European sovereign debt crisis would continue to be a cause for concern in 2012. 

"This is not because Europe is in a worse position than the United States, but we have to consider that Europe has an inflexible system where problems come out sooner." 

Hart predicted that rates would stay low in Europe for the duration of 2012. 

"The ECB just recently cut rates and maybe at the next meeting there'll be another cut - irrespective of inflation because the focus in the euro zone is growth." 

Hart said next year, in terms of investment, was not going to be "an easy time". 

However, when markets were in turmoil, the resulting uncertainty brought opportunity as assets became mispriced. 

Hart added that he was still a gold bull. 

"When the quantitative easing of central banks attacks your savings, gold will continue to do well."