ECONOMIC WEEK AHEAD: Brics summit should attract most attention
It’s a quiet week on the economic front, with the Brics summit attracting much of the attention. This may be a crucial pillar for President Cyril Ramaphosa to achieve his ambitious $100bn investment target over the next five years. SA’s largest export destination is China, with India, Brazil and Russia all being significant partners.
On Tuesday Finance Minister Nhlanhla Nene will open a conference in Sandton on SA’s key finance priorities for the Brics summit.
There is a slew of second-tier economic data expected in the week. On Monday Statistics SA will release May tourism, migration and accommodation figures, along with mid-year population estimates, the land transport survey, food and beverage sales and statistics on liquidations and insolvencies.
On Thursday Stats SA will release the June producer price index (PPI) and construction materials price index. The PPI figures often follow the same trajectory as the consumer price index numbers.
Given the weak state of domestic demand and the continued inability to pass costs on to retailers and consumers, we expect factory gate prices to rise only modestlyMamello Matikinca
The PPI for final manufactured goods rose from 4.4% year on year in April to 4.6% in May. FNB chief economist Mamello Matikinca said this reflected relatively contained price pass-through.
"Given the weak state of domestic demand and the continued inability to pass costs on to retailers and consumers, we expect factory gate prices to rise only modestly," said Matikinca, who expects producer inflation to lift to 4.7%.
Macroeconomics website Trading Economics expects the figure to rise to 4.9%.
While consumer and producer inflation have surprised on the downside in recent months, Reserve Bank governor Lesetja Kganyago said at last week’s monetary policy committee meeting that inflation is expected to move up. "The weaker rand exchange rate and higher oil price assumptions result in a more elevated inflation trajectory."
Favourable trends in consumer and production inflation, combined with the dismal state of the economy, resulted in the Reserve Bank cutting the official policy rate by 25 basis points in March.
According to NKC economist Elize Kruger, this "should support the economy in general, but given the upward pressure forecast on prices from here onwards, we do not expect any further interest rate cuts in the foreseeable future."