PPI data set to reflect updates to the basket
The economic week starts slowly, with major data expected only on Thursday and Friday. On Thursday, the Reserve Bank will publish data on private sector credit extension for January, Stats SA will release January’s producer price index (PPI) and the SA Revenue Service (Sars) will publish the January trade balance.
On Friday, the Bureau for Economic Research (BER), in partnership with Absa, will publish the purchasing managers’ index (PMI) for February.
Private sector credit outperformed market expectations and accelerated to 4.9% year on year in December, from 3.8% in November. Faster growth in corporate credit outweighed slower household credit uptake. Corporate credit quickened to 5% from 3.1% previously, with all subcomponents improving in December, spearheaded by instalment sales.
By contrast, the slowing trend in household credit persisted to 4.3% from 4.8% previously, due largely to the continued moderation in unsecured credit uptake.
But analysts warn that with the full impact of the Reserve Bank’s interest rate hikes still to filter through the economy, business and households will continue to feel the strain of the high-cost environment. The Bank has raised borrowing costs a cumulative 475 basis points since November 2021 after the Covid-19 pandemic.
The Bank has been steadfast in its commitment to keep rates “higher for longer” as inflation risks persist and price rises remain above the midpoint of its 3%-6% target range.
Nedbank senior economist Isaac Matshego said the bank expected annual growth in private sector credit to slow to 4.5% from 4.9% as general credit conditions remained weak at the beginning of the year due to the unfavourable economic environment.
“The year-on-year growth in loans and advances excluding investment and bills is likely to fall to 4.2% from 4.7% as higher interest rates, weaker household finances and fading consumer confidence continued to undermine household
spending and credit demand,” said Matshego. Weak economic activity and business confidence also continued to weigh on corporate credit demand.
Economist Lara Hodes said Investec expected private sector credit to ease to 4.3% at the beginning of 2024, with corporate credit forecast to slow and credit afforded to households to moderate further.
Stats SA will release rebased PPI data on Thursday. The series will be rebased to December 2023 and will reflect updates to the basket and weights. In the final manufactured goods index, the weight of food products, beverages and tobacco products rises to 29.16% from 27.39%, the coke, petroleum, chemical, rubber and plastic products category rises to 24.26% from 22.7%, while the weight of basic and fabricated metals rises to 45.53% from 42.52%.
BER economists said that while the changes complicated the forecast slightly, they expected January PPI, much like consumer inflation, to reaccelerate slightly at the beginning of the year due to higher fuel prices. Producer inflation slowed to 4% year on year from 4.6% in November.
FNB chief economist Mamello Matikinca-Ngwenya said monthly pressure remained steady at negative 0.6%. “Annual intermediate producer inflation remained in deflation, marking the sixth successive month of deflation,” said Matikinca-Ngwenya. “We anticipate producer inflation to have slightly increased at the beginning of 2024, reflecting fuel price increases in January 2024 compared to January 2023.” Matshego said Nedbank forecast PPI at 4.8% in January from 4% as the base effect eased. “Producer inflation will principally be lifted by the coke, petroleum, chemicals, rubber and plastic products category. Within this category, fuel prices will exert the most downward force,” he said.
“The petrol price increased 3.3% year on year, after a 3.7% drop in December, while the diesel price declined a modest 0.5% after dropping 9.3%.”
He said food prices also continued to moderate, though slowly, with downforce partly contained by higher input costs associated with load-shedding.
Hodes said Investec expected PPI to rise 4.6% year on year in January from 4% in December on base effects.
“While a cut in the petrol and diesel price in January will have reduced pressure on the headline number, hikes were implemented in February, with further fuel price increases building for March which will weigh on the months’ inflation readings,” she said.
Also on Thursday, Sars will release balance of trade data for January. The trade balance surplus was R14.1bn in December, reflecting a slight decline from the R20.5bn surplus in November.
Exports declined 11.5% on a monthly basis to R163.9bn, attributed to decreases in the volumes of gold, platinum, and vehicles. Imports declined 9% month on month to R149.9bn.
Overall, the trade balance surplus was R61bn in 2023, significantly lower than the R192bn surplus in 2022.
“This was influenced by strong import growth of 8.8% year on year, consistent with the ongoing renewable investment drive, while export growth remained muted at 1.3%,” said Matikinca-Ngwenya.
Matshego said Nedbank expected the trade balance to have switched to a deficit of R5.2bn in January from a surplus of R14.1bn the previous month.
Hodes said Investec expected the trade account to move to a deficit position on a seasonal lift in the value of imports and a decline in export activity in January. “We project a deficit of about R15bn,” she said.