Producer Inflation Likely To Have Slowed Due To Falling Oil Prices

26 May 2020 – Producer inflation will be in focus this week, with economists expecting the fall in international oil prices to have had a dampening effect on the March print.

Investec economist Kamilla Kaplan said the producer price index  (PPI) for March is expected to have slowed to 3.5% year on year from 4.5% in February.

“Falling fuel prices are expected to have a dampening effect on producer price inflation for manufactured goods. The international oil price was 60% weaker in March and April compared to the start of the year,” Kaplan said in a note.

“However, the full downward effect on producer prices of the lower oil prices will have been partially limited by the weaker rand exchange rate.”

FNB economists said in a note they expect the PPI to move in tandem with the disinflation trend of the consumer price index.

Another surplus in the balance of trade is expected as the data for April is likely to reflect the effect of lockdowns on trade.

The SA Revenue Service is set to release balance of trade data for April on Friday. The median forecast among economists polled by Bloomberg is a surplus of R13bn from a surplus of R24.2bn previously. The balance of trade is an indicator of the difference in value between a country’s imports and exports.

FNB economists said they anticipate another surplus in April but warned that export and import volumes are likely to have declined significantly amid stringent global lockdown measures.

“While the closure of most mining activity during the month would likely have dampened export sales, we expect the significant drop in oil prices — a sizable portion of the import basket — and dampened local demand to have constrained foreign purchases even more relative to export volumes,” FNB economists said.

The Reserve Bank’s composite leading business cycle indicator is expected to have declined in March. According to Trading Economics, the consensus is a 0.4% contraction from 0.1% in February.

The leading indicator shows a projection of SA’s economic growth cycle for the next six to 12 months. The indicator is based on a range of components including the number of approved building plans, job advertisement space, the Bureau for Economic Research’s business confidence index, manufacturing order volumes and passenger vehicles sold.

FNB economists said the March print “may well begin to reflect the adverse impact on the economy due to stringent lockdown measures”.

Credit extended to households and businesses is expected to have increased in April to 9.9% year on year from 7.8% previously, Kaplan said. The data is due on Friday.

“The forecast is premised on the expectation that during lockdown corporate loan demand for emergency funding to cover working capital requirements increased,” Kaplan said.

The Treasury is expected to release the monthly budget update for April on Friday. Source (Business Live)