Spotlight falls on PPI and trade balance

Following the 2018 budget statement, it’s going to be another packed week on the economic front. On Wednesday, the producer price index (PPI), private sector credit extension and the trade balance are all expected to be released.

Last week, consumer price inflation (CPI) dropped to its lowest level since March 2015, down to 4.4% in January 2018 from 4.7% in December 2017.

For 2017 as a whole, inflation averaged 5.3%, down from 6.3% in 2016, but up from 4.6% in 2015.

FNB chief economist Mamello Matikinca said that the PPI would moderate slightly from December’s year-on-year 5.2%, driven by an increase in the fuel price.

“A fuel price cut in January on the back of a positive market and currency reaction to the outcome of the ANC elective conference should see the PPI drift lower to 5% year on year.”

Historically, January is a bad month for the trade balance as producers return from the December break and importers replenish stock.

Over the past four years, the January trade balance has averaged at a R17bn deficit.

On Thursday, the Absa purchasing managers index (PMI) and new vehicle sales for February will be released. The PMI rose 5.0 index points to 49.9 in January, staying in contractionary territory for the eighth straight month.

This reflects an improved outlook for the domestic and global economy as well as higher business confidence following the election of Cyril Ramaphosa as ANC president.

“Manufacturing performance has been too erratic on an historic basis and we need to see more consistent and regular growth. The improvement indicated in January’s PMI is a positive first step, but much still needs to be done,” said Manufacturing Circle executive director Philippa Rodseth.

Economists will also look out for a statement from creditrating agency Moody’s Investors Service.

Investec chief economist Annabel Bishop said: “Moody’s has said that SA has made a number of credit-positive strides since December 2017. The budget on its own does not necessarily argue for a creditrating downgrade. Certain components of the budget are credit positive, especially the marked decline in projected borrowings.”

Moody’s is expected to make a ratings announcement on March 23 or before.