The tariff hikes requested by electricity parastatal Eskom will push up the inflation rate by between 0.5 to one percent, Azar Jammine, chief economist of Econometrix, said on Friday.

He was addressing the annual conference of the SA Chamber of Commerce and Industry (Sacci) in Johannesburg.

Earlier this week, Eskom announced that it had asked the National Energy Regulator of SA to approve an increase of 45 percent every year for the next three years.

"As a consequence, we'll be very lucky to stay in the SA Reserve Bank's inflation target of three percent to six percent for any length of time," Jammine said.

Inflation might fall within the SA Reserve Bank's (SARB) target for the second quarter of 2010, it would not remain there for very long and would soon rise to around seven percent, he said.

Kill SA's economy

"And this means that interest rates cannot come down anymore ? in fact they'll start rising."

South Africa's economy was weak "and if we don't want to kill it, an alternative would be to raise the interest rate target band for as long as the electricity price hikes last ? but with this view I'm in the minority", he said.

Commenting on the political environment, he said people were "still nervous" about the government's leftward shift in economic policy.

"(President Jacob) Zuma had a lot of support in the election campaign from the SA Communist Party and the Congress of SA Trade Unions and he identifies with the people on the ground, the people in the rural areas."

Jammine said there was a perception that government would assist the poor at the expense of the rich and of business.

Skills shortage is the greatest challenge

However, Jammine said the greatest challenge facing South Africa was the shortage of skills.

Unless skills were developed, he said, poverty, unemployment, inequality and crime would persist.

While economic growth would pick up in the short term in South Africa, Jammine said he was concerned about the longer term.

"That is unless education and skills are improved. If they're not we will be very vulnerable. And already we are losing out compared with some other African countries," he said.

However, it was important to note the extent to which South Africa was integrated with the rest of the world and its future would depend ultimately on the global economy.

The popular view was that the global financial crisis would be over in a year or two but Jammine said he had his doubts.

Next downturn is not far away

"Steps taken by governments have tempered the depth of the present downturn ? so I believe the next downturn is not far away ? I thought it was around 2012 but it's getting closer.

"You either took the meltdown on the chin or you alleviated the pain until a later date," he said.

Jammine said South Africa could take comfort that the SARB had not gone as "berserk" as other central banks in an attempt to fight the meltdown and also the government had not adopted the drastic steps taken by countries like the US.

He said there was some hope for the local economy if China and India took over as drivers of the global economy ? "then South Africa would benefit", he said.

"But we must try and reduce our dependence on the global economy and this would happen if we produced more of what we import," he said.