Speculation that changes to the way in which consumer prices are calculated will help lower inflation propelled banking shares and government debt into a heady rally last week. Yields on benchmark bonds ? which move inversely to prices ? have fallen by up to a full percentage point this month as markets started to price in the reduced chances of further interest rate hikes this year. Much of that move was spurred by a report last week from Investec Asset Management, which said that inflation would be more than two percentage points lower if the data changes were applied now. Ditto for interest rates. That report also helped boost financial shares, which have been bludgeoned by the soaring cost of credit. But global trends added to the impetus for local banking stocks, while domestic bonds had already begun to firm in the wake of surveys, research and data that testified to the economy?s deepening slowdown. Statistics SA flagged the likelihood of lower inflation when it announced its planned changes to baskets of goods and services in consumer prices on July 1. That news generated a wave of considered research from many economists ? which was ignored by local markets until Investec Asset Management?s well-publicised ?media release?. Some analysts fear that the euphoria over monetary policy implications may be overdone, particularly in bonds, which are most vulnerable to the effects of volatile oil prices and the rand. ?Considerable risks to the inflation prognosis remain,? said Standard Bank in a research note last week. While the changes to official data set to take effect in January do paint a more benign inflation outlook, optimism over interest rate cuts may be excessive, it said. Inflation measured by CPIX, which is consumer prices minus mortgage costs, has exceeded its official 3%-6% target range for 14 months running, climbing by an annual 10,9% in May. It is expected to break its previous record of just over 11% in the third quarter of this year, with higher electricity tariffs pushing it up to between 12% and 13% ? a sombre outcome. Reserve Bank Governor Tito Mboweni waded into the debate last week, warning that inflation was still spreading beyond food and fuel, posing a ?huge? challenge to monetary policy. ?It would seem to us things will get worse before they get better ? let me not say more,? he told the Institute of Bankers. Many analysts agree. Plans by Stats SA to lower the weighting for food in headline consumer prices and the CPIX gauge monitored by the Reserve Bank for monetary policy are indeed seen as likely to put downward pressure on inflation. But the lower clout of food prices ? which is now one of the two main inflation culprits ? may be offset by other changes to the data instigated by a five-year survey carried out by Stats SA in 2005-06. There are also a number of unknowns. These include the behaviour of global oil prices, which have set successive records this year. Service price inflation must be considered, as its weighting will increase just as it is starting to rise, in step with higher wage settlements. And nearly a fifth of the revised basket of consumer prices will include prices for goods not included at present, like minibus taxi fares, funeral costs and restaurant meals. There is also the sensitive matter of inflation expectations to consider, which tend to become a self-fulfilling prophecy in price- and wage-setting. A survey from the respected Bureau for Economic Research shows that South Africans now believe inflation will breach its target until late in 2010 ? a view shared by the Reserve Bank. Nonetheless, treasury director-general Lesetja Kganyago said last week the furore over changes to inflation data was good, as it might curb mounting inflation expectations. Prior to last week?s drama, some analysts were already predicting that the Bank might keep interest rates on hold at its next policy meeting next month. They include Citigroup?s Jean-Francois Mercier, who also thinks interest rates will fall by 1,5 percentage points in the second half of next year. Absa Capital has a similar view. Its research head, Jeff Gable, says interest rates will start falling in the first half of next year, with the new weightings bolstering trends which would be in place anyway. ?That doesn?t mean interest rates are likely to fall this year ? we mustn?t lose sight of the fact that inflation for many goods is rising. Your own experience of inflation doesn?t change now.? Mboweni told 702 Radio last week that the Reserve Bank would be guided only by published data from Stats SA. But Bank officials say they have been considering the effect of the new weightings, like everyone else.