Subdued outlook for producer inflation
In a light week on the economic data calendar, main highlights will be the SA Reserve Bank’s leading indicator, producer inflation, and the latest jobs data.
In a light week on the economic data calendar, main highlights will be the Reserve Bank’s leading indicator, producer inflation, and the latest jobs data, both likely to reflect a subdued path for the economy.
First up on Wednesday will be the leading business cycle indicator for July. In June the indicator dashed hopes for a near-term economic recovery when it fell 2.8%. It was the ninth month running of the indicator posting year-on-year decline. But the focus of the week will be the producer price index (PPI) for August from Stats SA on Thursday.
Investec economist Kamilla Kaplan expects PPI inflation to have slowed for the fourth month running, to 4.6% year on year from 4.9% in July, mainly due to high statistical base effects stemming from petrolprice rises. The good news is that this feature should continue to suppress the annual growth in the fuel component of the PPI throughout much of the second half of the year, she says.
BNP Paribas economist Jeff Schultz expects headline PPI to have fallen to 4.5% in July. In addition to base effects involving petrol, recent rand resilience, coupled with weak underlying domestic demand conditions, will keep a lid on producer prices for the rest of 2019.
This aligns with BNP’s outlook for consumer inflation, which it expects to remain at the midpoint of the Reserve Bank’s 3%-6% target range, which should give the Bank scope to ease policy rates modestly later this year and into 2020, says Schultz.
Stats SA’s second-quarter Quarterly Employment Statistics (QES), measuring formal nonagricultural sector employment, will be issued on Thursday, and is likely to reflect continued deterioration.
It was a shock in July when the second-quarter Labour Force Survey, including the informal sector and farming jobs, showed the official unemployment rate leapt to a record high of 29% from 27.6% in the previous quarter.
By this measure, 6.65million people are unemployed, up 455,000 on the first quarter and up 573,000 year-on-year.
Economists attribute this mainly to lack of private-sector fixed-investment spending and sustained low business confidence. The QES will be especially interesting for what it says about wage growth.
“We are familiar with the story of weak job creation. But it is less appreciated that employees’ average monthly earnings have been slowing sharply, to just 3.8% year on year in the first quarter, which is negative in real terms,” says Absa economist Peter Worthington. If this persists in the second quarter, consumer spending is unlikely to recover any time soon.