IF POOR weather conditions in the US, the world's biggest grower of maize, and in Russia, one of the biggest wheat producers, don't improve, and soon, food may again pose upward risk to SA's inflation outlook.

Yesterday, the US department of agriculture cut its production and inventory estimates more than analysts predicted amid the worst drought since 1988. With less maize expected out of the US, we are already seeing increased demand for local maize.

White maize has shot up 9,2% over the past two weeks, while yellow, used in animal feed, has gained 10,2%. US weather conditions are unlikely to improve in maize-growing areas this week and next.

Maize is SA's staple food and feeds into the price of poultry, red meat and other products.

Wheat prices have also moved higher in recent weeks on drought concerns in Russia. South African farmers have cut back on wheat production in favour of maize over the past couple of years because of more favourable pricing.

Local wheat prices have gained 8,2% over the past two weeks.

In May SA's inflation moved back into the Reserve Bank's targeted range for the first time since September. Easing fuel and food costs were the main drivers.

But with maize and wheat prices on the rise - especially if there is no break in weather conditions in the US and Russia - food inflation could move back into double-digit territory. It may not push inflation outside the Bank's target, but it is upward pressure all the same.

Food inflation makes up 15% or so of SA's overall inflation basket.

IF SA's mining and manufacturing data for May surprise on the downside today, it will boost chances that the Reserve Bank will cut rates before the end of the year at the very least.

This depends on a huge jump in food inflation because of factors beyond its control as was alluded to in the first part of this column.

Back to mining and manufacturing, which combined make up about 20% of SA's gross domestic product. They have been the most affected by Europe's economic slowdown, which has been spreading to other important export destinations, such as China.

"The supply-side data could drive market rate expectations even lower, should either release significantly surprise to the downside," Absa Capital said in a note.

With the central banks of US, UK and Europe finding less and less room to boost liquidity because of record low interest rates, economic data have become even more important than usual to stock, currency and bond markets.

For emerging market countries that have more room to consider rate cuts with cooling inflation levels, poor economic data have pushed central banks in Australia and most recently China to cut rates to boost growth.

The supply-side data to be released today may just make a decision to cut rates all that easier for the Reserve Bank.

But whether a cut will make any difference to the economy remains to be seen. It would bring relief, but just how much it would lead to greater confidence among consumers is the issue. Rates are already at a 30-year low.

The South African Chamber of Commerce and Industry yesterday said business and consumers would welcome a cut, but that it was unlikely to make a substantial difference to the economy at this stage.

THERE'S the risk that Spain's rush to calm investor concerns over its public finances may just plunge the country into a deeper recession.

It looks rather familiar to what happened in Greece. The more investors and European authorities peered into its finances with a critical eye, the more the government had to cut back on spending, leading to an economic depression. Spanish Prime Minister Mariano Rajoy risks doing the same to his country that the former ruling party of Greece did to its economy.

Spain, whose banking system is still in a precarious position, has already launched four programmes as part of an austerity drive to regain market confidence.

The desperation for foreign capital to sustain public services and keep its banks afloat has wrested control of policy from the government.

Politically, the austerity-versus-growth debate may have been won by the latter, as evidenced by recent poll results and the "softening" of German Chancellor Angela Merkel.

But in practice, markets are calling the shots and they want austerity as well as growth.

It's impossible to achieve.

.E-mail: derbyr@bdfm.co.za Twitter: @ronderby