Inflation is likely to fall - according to the director general of the National Treasury, Lesetja Kganyago, and as a result, interest rates will fall over time.

Making a presentation to MPs on Parliament's finance committee on Tuesday, the director general said that CPIX has peaked and has already begun to decline. He warned them however that second-round effects and the price of electricity are raising core inflation.

He was speaking after he and his ministerial chief, Trevor Manuel, returned with President Kgalema Motlanthe from the summit of the G-20 group of countries held in Washington at the weekend. Manuel later also made a ministerial statement in the National Assembly.

Kganyago told the committee that the global turmoil has seen rapidly falling commodity prices round the world, and major capital outflows have been badly affecting share prices, with the JSE down 31.4 percent and the Dow Jones Industrial Average down 33.3 percent. Russia has been worst hit with 71 percent being wiped off prices in Moscow, and China has also been hit hard, dropping 65 percent of the stock exchange value.

China's contribution to world growth however is still high, Kganyago said, although it is slowing down. The result of the slowdown has been that demand for commodities there has cooled, and prices have fallen rapidly, although he did say that "income accruing to South African exporters remains relatively high for now".

The terms of trade - the ratio of export prices to import prices - is also beginning to decline, he said.

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