The South African Reserve Bank’s leading indicator kicks off this week’s slew of data releases, which is likely to show that the economy is slowly coming under strain from the rising input costs deriving from the Middle East war and its effect on oil prices.
The leading indicator is a composite index that aims to predict the direction of the economy several months ahead. In January it rose 0.4% month on month to 118.2, which reflects 4.8% annual growth versus 4.3% previously. The bank will publish the February data on Tuesday.
A report from Statistics South Africa on Thursday is expected to show that producer inflation edged up slightly in March, though the first meaningful effect of the jump in local fuel prices in response to the US-Israel war against Iran will only be fully evident in the April data.
Economists are predicting that the producer price index (PPI) climbed 1.7%-2% year on year in March after slowing to 1.8% in February from 2.2% previously.
“Fuel prices rose moderately at the beginning of March, which will have added some modest upside inflationary pressure,” Investec economist Lara Hodes said.
She pointed out that fuel prices in South Africa are calculated on price movements during the previous month and therefore “the effect of the surge in oil prices and depreciation of the rand as a result of the war in the Middle East will be felt in April’s PPI number”.
“Additionally, we could see an uptick in manufactured food price inflation which is influenced by movements in global prices which rose month on month in March,” Hodes said.
The South African Revenue Service will on Thursday publish trade numbers for March, which should show a narrowing in the trade surplus as the spike in global oil prices induced by the Middle East crisis pushed up the value of the import basket.
South Africa is a net importer of oil, with the commodity accounting for nearly 18% of total imports. In addition, import growth was moderately supported by generally favourable domestic demand conditions.
“Exports likely remained resilient amid modest global demand and a firm rand. Overall, we forecast a trade surplus of R30.8bn in March,” Nedbank economists said in a note.
South Africa recorded a trade surplus of R36.9bn in February, higher than the downwardly revised R8.5bn posted in January.
Also on Thursday, the Bank will publish broad money supply and private sector credit extension data for March.
After a sharp acceleration to 13.3% year on year in February, driven largely by strong growth in investments and bills, annual growth in credit extension is expected to have moderated to 10.9% in March, according to Nedbank.
Bank credit growth excluding investments and bills is nevertheless forecast to remain robust at 7.8% year on year, despite easing from 8.8% in February. Both corporate and household lending are expected to contribute.
Corporate credit growth is likely to strengthen to 10.5%, supported by favourable base effects.
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