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Consumer Inflation and Business Conditions in Sharp Focus

21 October 2019 – Consumer inflation and SA’s business conditions are in focus in the week ahead, though any positive surprises may be overshadowed by rolling blackouts.

Unreliable electricity supplies were a major factor in SA’s shock 3.2% first-quarter GDP contraction.

“Load-shedding is estimated to be costing the economy in the region of R2bn a day and poses a significant threat to the local GDP,” said Peregrine Treasury Solutions corporate treasury manager Bianca Botes.

“A downward adjustment in the GDP forecast to 0.8% could now be an overestimation, depending on the duration and intensity of rolling blackouts throughout the country,” she said.

The Reserve Bank leading indicator for August is expected to show an 11th consecutive month of decline on Tuesday.

The Bloomberg consensus is for the indicator to have fallen to 103.7 index points from 103.9 in July. The indicator is a strong projection of SA’s economic growth cycle for the next six to 12 months. The Bank compiles the leading indicator by assessing monthly movements in various economic indicators such as building plans passed, commodity prices and new passenger vehicles sold.

The leading indicator is likely to have registered another monthly deterioration in August, and seven of the 10 components in the index are likely to have fallen, said BNP Paribas senior economist Jeffrey Schultz. SA’s economy is likely to grow only 0.8% in 2020 and 0.4% in 2019, he said.

“The instability of electricity supply highlights the acute structural challenges the economy continues to face, while a more substantial slowdown in global growth going into next year is likely to impact negatively on the country’s net trade outlook, unfortunately,” said Schultz.

Consumer inflation on Wednesday is the major local economic release, with the Bloomberg consensus being that inflation was unchanged at 4.3% in September. This is below the midpoint of the Reserve Bank’s target range.

Investec economist Kamilla Kaplan said inflation is likely to have moderated to 4.2% in September, largely due to the housing and utilities category, where there was slower inflation of rentals, reflecting a weak property market.

“In September, the contributions from the food and petrol price components are expected to be relatively steady,” said Kaplan. “The effects of a generally weak demand environment are evident in the broader consumer price index dynamics, particularly for discretionary goods and services,” she said. Source (Business Live)