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South African Finance Minister Pravin Gordhan

Quoting former US Bill Clinton's famous cliche "It's about the economy, stupid!", Brait economist Colen Garrow asserts that that must be foremost on the mind of Gordhan when he delivers the National Budget for 2012/13 on Wednesday afternoon.

"The Minister," he points out, "is faced with a number of challenges, particularly those that relate to the winds of contagion that are expected to pick up in intensity from the crisis in the Euro-zone. We already know - from President Zuma's State of the Nation Address last week - that the emphasis is on infrastructure, a series of government spending programmes that total slightly more than R800 billion over the next three years, the so-called medium-term estimates."

Standard Bank economist Thabi Leoka believes the 2012 Budget is likely to reiterate the need for jobs growth, but also expects continued investment in infrastructure, mining and manufacturing sectors.

"Jobs through infrastructure development is likely to be reiterated in the Budget. South Africa has adopted a counter-cyclical fiscal policy at a time when most countries are shrinking their budgets, Leoka notes.

Earlier on Wednesday, Statistics South Africa releases the Consumer Price Index (CPI) for January, which Leoka expects to reflect a mild increase.

"We expect CPI to increase to 6.2% due to upward pressure emanating from food and fuel prices. Such an increase is likely to have been driven by the usual suspects: food and transport. The stronger currency in January is likely to have shielded the impact of rising import costs," she says.

Econometrix economist Yumna Ebrahim notes that the year on year CPI inflation figure for December remained unchanged from the November figure of 6.1%.

"In general, most of the different components of CPI were barely changed in December. Nonetheless, the overall rising trend in CPI inflation, which has been in place since September 2010, still remains.

"An important factor to bear in mind is that the CPI inflation rate is currently above the 6.0% upper limit of the Reserve Bank's inflation target. Going forward, one should be vigilant of the impact that the steep increases in food and the Rand price of crude oil will have on the CPI.

"In addition, the fact that PPI inflation remains much higher than CPI inflation continues to be a concern, indicating that there is still significant follow-through potential for CPI inflation to increase during the first few months of the year. In conclusion, it is thus envisaged that the CPI inflation rate still has some upward scope for the remainder of the year."

CPI will be followed by the Producer Price Index (PPI) on Thursday. Leoka believes that January factory gate prices have edged lower.

"With the rand strengthening, producer prices are likely to soften in January. Mining and quarrying, electricity and products of petroleum and coal, which collectively account for 30% of the total PPI basket, are expected to continue undermining PPI. We expect PPI to have moderated in January," she says.

The y/y PPI inflation rate declined in December to single digits for the first time since August. The December PPI inflation rate came in at 9.8% y/y, down from 10.1% in November. This decline in PPI was somewhat greater than expected.

"The key drivers behind the December outcome," says Ebrahim,

"was sharply higher food prices contributing to upward pressure in the December PPI, but this was neutralised by steep falls in the inflation rates of coal, and moderate falls in inflation of crude oil and petroleum products.

"PPI inflation is expected to continue its decline in January, based on the stronger Rand and a reduction in the petrol price of 6c/l in the month. Furthermore, the 20 cl to 25 cl reduction in the price of diesel (depending on the make) would have contributed towards reducing the PPI inflation rate.

"However, the accelerating trend in food prices is likely to put some upward pressure on producer prices in January," adds Ebrahim.

Other local economic data scheduled for release this week include tourist accommodation stats for December, a land transport survey for December as well as food and beverage figures for the same month. They are all scheduled for release by Stats SA on Monday.

Go to Budget 2012 Special Report