Market to keep tabs on confidence, producer inflation

Consumer confidence and the producer price index (PPI) will be the main focus this week. Both are likely to have improved in line with the firming economic climate.

A string of second-tier data will be released on Monday, including tourist accommodation, land transport volumes, food and beverage sales for February, as well as liquidation and insolvency statistics for March. The Reserves Bank’s leading indicator comes out on Tuesday.

On Wednesday the First National Bank/Bureau for Economic Research consumer confidence index for the first quarter will be released.

Given SA’s improved economic outlook since President Cyril Ramaphosa took office, coupled with Moody’s Investors Service’s affirmation of the country’s credit rating and the 25 basis point interest rate reduction in March, the expectation is the index will have climbed from the low level of -8 index points exhibited in the final quarter of 2017.

FNB chief economist Mamello Matikinca expects the consumer confidence index to show “a big jump above zero” on rising consumer optimism, judging from the robust growth in retail trade sales in 2018.

The value-added tax (VAT) increase on April 1, together with lacklustre employment prospects, could keep consumers “relatively cautious”, warns BNP Paribas senior economist Jeff Schultz.

He expects the consumer confidence index to have improved to a level of -1 in the first quarter but feels there remains scope for it to turn “modestly positive” towards the middle of the year.

On Thursday Statistics SA will release PPI figures for March. Most economists expect producer inflation to follow the consumer price index (CPI) lower in March. The headline CPI came in at 3.8% year on year from 4% year on year in February — better than the consensus expectation of 4.2% year on year. The improvement in inflation was driven by a decline in the fuel price and low food price inflation.

Producer price inflation for final manufactured goods fell in February to 4.2% year on year from 5.1% in January.

BNP Paribas expects headline PPI to drop to 4% year on year in March because of the stronger currency, subdued manufactured food prices and softer fuel costs. But the VAT increase and higher domestic fuel prices are likely to push PPI back above 5% from May’s print, Schultz feels.

FNB thinks PPI could fall as low as 3.9% year on year in March, given all these factors coupled with the high base of early 2017.

Matikinca agrees, however, that this is likely to be the trough in the current cycle and that producer inflation will inch higher over the coming months.

FNB THINKS PPI COULD FALL AS LOW AS 3.9% YEAR ON YEAR IN MARCH, GIVEN ALL THESE FACTORS