Inflation still high

Weak de­mand isn’t hav­ing an ef­fect

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN

DE­SPITE THE FALL OFF in de­mand for new build­ings, res­i­den­tial build­ing cost inflation is still high. First Na­tional Bank prop­erty strate­gist John Loos cal­cu­lates that – un­like 1997/1998, the last pe­riod of ma­jor weak­ness in res­i­den­tial prop­erty – year-onyear inflation in the av­er­age value per square me­tre of build­ing com­ple­tions in July was still run­ning at 11,7% on a three-month mov­ing av­er­age ba­sis.

Loos says that de­spite very weak de­mand, inflation shouldn’t be too sur­pris­ing, given that build­ing in­put cost inflation is still be­lieved to be con­sid­er­able. From a 7,9% year-on-year nadir in Jan­uary, the pro­ducer price inflation rate for build­ing ma­te­ri­als had in­creased to 13,2% by July. That re­flects a re­sump­tion of build­ing in­put in­fla­tion­ary pres­sures af­ter a brief lull. “As the great fixed in­vest­ment boom con­tin­ues to gather mo­men­tum one shouldn’t an­tic­i­pate build­ing costs to be cheap, with res­i­den­tial build­ing hav­ing to com­pete with the broader construction sec­tor for cer­tain in­puts,” Loos says.

Over­all, Loos says build­ing statis­tics for July con­tin­ued to re­flect a weak pic­ture in the res­i­den­tial build­ing ac­tiv­ity sec­tor.

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