Johannesburg - Figures on Wednesday are expected to record a slight shift in headline inflation in May, but weak economic activity may see the Reserve Bank refrain from hiking interest rates at its July meeting of the monetary policy committee.
Kamilla Kaplan, an economist at Investec, said on Friday that consumer price index (CPI) inflation was forecast to have lifted in May to 6.3 percent from 6.2 percent the previous month.
“The drivers of CPI inflation continue to be a supply side nature, while meaningful demand-led inflation has remained absent. The muted demand environment, as evidenced in the contraction in household consumption expenditure in the first quarter of 2016, coupled with the relatively moderate rates of credit and money supply growth, suggests that the current supply side pressures should not lead to pervasively higher rates of inflation.”
Following a visit to South Africa by its team, Bank of America Merrill Lynch said last week that its view was inflation would average 6.2 percent this year. It said it expected food price inflation to normalise as weather patterns returned to normal.
“Published commentary from the Reserve Bank suggests that its concerns about exchange control rate pass through underpin its continued hawkish rhetoric. Though we expect renewed rand weakness and higher fuel prices into year-end to weigh on consumer price inflation, with domestic demand so weak, corporates will struggle to pass on higher input costs to consumers. Thus we expect core inflation to average 5.4 percent compared with the Reserve Bank’s forecast of 5.49 percent.”
South Africa’s consumer confidence remains depressed as the economy remains in the grip of “stagflation”, the latest FNB/ Bureau for Economic Research (BER) consumer confidence index showed in April.
Recovered
After plunging from minus 5 points in the third quarter of 2015 to minus 14 points in the fourth quarter, the confidence index recovered lost ground to minus 9 points in the first quarter of 2016.
South Africa’s real gross domestic product (GDP) fell by 1.2 percent in the first quarter.
Household expenditure, which has been a major driver of the economy, fell by 1.3 percent, the first time since the first quarter of 2014.
In its June quarterly bulletin published last week, the Reserve Bank said the contraction in real GDP in the first quarter emanated from real final consumption expenditure by households and gross fixed capital formation, which collectively subtracted 2.1 percentage points from total economic growth over the period.
It said having advanced at a relatively firm pace of 8.9 percent in the third quarter and 11.1 percent in the fourth quarter of 2015, growth in real expenditure on semi-durable goods slowed to an annualised rate of only 1 percent in the first quarter of 2016.
The Reserve Bank said real spending on clothing and footwear – the largest component of semi-durable goods – as well as on household textiles, furnishings and glassware, and miscellaneous goods increased at a much slower pace over the period, alongside a decline in outlays on recreational and entertainment goods.
“By contrast, household spending on motorcar tyres, parts and accessories accelerated as consumers opted to spend money on the upkeep of their vehicles, rather than replacing them with new ones.
The report said rising prices and weak employment growth hampered spending on non-durable goods in the first quarter. It said real outlays on non-durable goods rose at an annualised rate of 0.7 percent over the period.
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