It will be a busy week in terms of data releases, but the focus will be on inflation, both consumer and producer.
The Nedbank Group Economic Unit expects consumer inflation — the data will be released on Wednesday — to ease to 5.1% year on year in June from 5.2% in May. This will be due to a slower monthly increase of 0.1% from 0.2%, with the moderation mainly due to a decrease in fuel prices. The petrol price fell sharply by a monthly 4.1% in June, helped by a steady price of Brent crude oil, combined with a significant (3.3%) appreciation of the rand.
The rand was supported by the formation of the government of national unity, which is widely expected to accelerate structural reforms that will boost the economy. However, the moderation will partly be contained by the adjustments in housing and utilities prices, domestic workers’ wages, public transport fares and motor vehicle insurance, which were surveyed in June. At the same time, the rate of moderation in food prices probably continued to slow as the base effects on some food components have dissipated.
On the other hand, the producer price index (PPI) is forecast to increase to 4.8% year on year in June from 4.6% in May due to base effects. On a monthly basis, however, producer inflation should decline by 0.1% in June, after a 0.1% increase in May. The monthly decrease will reflect the decline in fuel prices, which will outweigh the effect of a slower deceleration in food prices.
The Bureau for Economic Research (BER) at Stellenbosch University foresees a slight downtick in headline inflation to 5.1% year on year in June. This would be the lowest headline inflation print in 2024. Price pressure is set to ease further during the second half of the year, with consumer inflation expected to average about 4.8% for the full year, down from 6% in 2023.
The BER expects consumer inflation to slow to the midpoint of the Reserve Bank’s target by the end of the third quarter and to stay below that level in the fourth quarter.
PPI data will be released on Thursday and the BER expects the headline number to ease to 4.5% in June on the back of an expected monthly decline. Similar to consumer inflation, factory gate price pressure should abate through the second half of 2024.
In terms of economic activity, data releases scheduled for the week include business cycle indicators, land transport, tourist accommodation, and food and beverages.
The composite leading business cycle indicator fell by a monthly 1.9% in March as declines in five of the seven available component time series outweighed increases in the remaining two.
The largest negative contributors were a decrease in the number of residential building plans approved and a deceleration in the six-month smoothed growth rate of the number of new passenger vehicles sold.
The only positive contributors were a widening of the interest rate spread and an increase in SA’s US dollar-denominated export commodity price index.
The composite coincident business cycle indicator increased by 0.4% in February due to increases in the real value of retail and new vehicle sales, industrial production and the utilisation of production capacity in the manufacturing sector.
On the international front, the US second-quarter GDP growth rate should increase to 2% on an annualised basis from 1.4% in the first quarter. The People’s Bank of China is expected to cut the one-year loan rate to 3.3% from 3.45%. The Bank of Canada is expected to maintain its rate at 4.75%.
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