ECONOMIC WEEK AHEAD: First look at how VAT hike has hit inflation
Inflation in April, which is expected to edge higher with the increase in value-added tax (VAT), is likely to inform the Reserve Bank’s interest rate decision this week.
On Wednesday Statistics SA will release the consumer price index (CPI) for April. This is the first inflation figure that will reflect the increase in the VAT rate from 14% to 15%, as well as the 72c petrol price hike.
Inflation was the lowest in seven years in March, at 3.8% year on year, trumping expectations of a slight increase.
FNB expects inflation to increase to 4.8% for April and Investec expects 4.7%. The forecasts are within the Reserve Bank’s 3%-6% target band.
On Thursday the Bank’s monetary policy committee (MPC) will announce its interest rate decision.
"We don’t believe a one percentage point jump in CPI will be enough to justify an interest rate hike, but we expect the tone of the governor’s speech to turn decidedly hawkish," says FNB chief economist Mamello Matikinca.
While the inflation outcomes are expected to be more favourable, Nedbank economist Johannes Khosa warns that the upside risks to the inflation outlook have increased.
Among the risks is the rand exchange rate. The country’s currency came under pressure in April and early in May, hurt by faltering risk appetite globally and a resurgent US dollar, says Khosa.
Given the risks, he says, the MPC will probably leave policy rates unchanged for the rest of 2018 before embarking on a modest hiking cycle in the second half of 2019.
"With the [Bank] highly unlikely to be in an aggressive rate-cutting cycle, we expect no change in the repo rate at the May MPC," says Investec chief economist Annabel Bishop.
On Friday credit ratings agency S&P Global is expected to release its mid-year sovereign credit-rating review of SA after the markets close.
While GDP growth forecasts have been raised by economists and institutions alike, Matikinca doubts the ratings agency will change its BB foreign currency and BB+ domestic currency rating from stable to positive.
Second-tier data due out next week includes March tourist accommodation, land transport and food and beverage data on Monday, and tourism and migration figures, as well as the Bank’s leading indicator on Tuesday.