Market will be on watch for CPI and current account data

Markets will be on watch for the release of two key sets of data: consumer price inflation for February and current account figures, making this one of the most important weeks on the South African economic calendar.

On Wednesday, Statistics SA is releasing the consumer price inflation (CPI) figure for February 2017, while the Reserve Bank quarterly bulletin, which contains SA’s current account numbers, is also scheduled to come out on the same day.

Both sets of figures are scheduled for release a week before the Bank’s monetary policy committee is due to hold its meeting next week, at which it will decide on the country’s interest rates.

The quarterly bulletin will contain figures for the last quarter of 2016 and give an indication of what the overall current account deficit was for the year, which could potentially affect the rand exchange rate.

Although the Bank uses its forecasts of future inflation when making its interest rates decision, CPI figures have a bearing too.

The local currency has reached new highs in recent weeks, hitting levels predating the calamitous recall of former finance minister Nhlanhla Nene in December 2015, when the rand tumbled to record lows and sent the market into a panic. Since then, the rand has staged a remarkable comeback.

CPI has been creeping lower because of the dissipating effects of drought, which has had a devastating effect on the agricultural sector and driven up food inflation. Although some provinces have seen improvements in their rainfall and drought outlook, the situation in the Western Cape remains a concern.

For most of 2016, CPI breached the 3%-6% target band set by the Bank because of a range of factors including the high cost of food.

However, economists are in agreement that the conditions that led to CPI going out of range are improving.

Macquarie economist Elna Moolman said in a research note that they forecast February CPI to moderate to 6.1% year on year, from January’s 6.6% — this is below the consensus forecast of a Bloomberg poll of economists, who predict CPI will come in at 6.4%.

Moolman predicted that the current account deficit would narrow in the fourth quarter of 2016 to 2.7% of GDP.

The current account deficit averaged 4.1% in the first three quarters of 2016.

She forecast further narrowing, citing the improved performance of the rand.