Picture: 123RF/RICHARD THOMAS
Picture: 123RF/RICHARD THOMAS

Inflation data will provide further insight into how the Reserve Bank’s monetary policy committee will respond when it meets at the end of March.

Following the decision to hike interest rates for the first time in two years in November, inflation has eased significantly, falling below the 4.5% midpoint of the inflation targeting range.

On Wednesday, Stats SA will release the inflation figures for February. Consumer inflation decelerated to 4% in January, lower than the markets’ forecast of 4.3%. It measured 4.5% in December.

“The inflation outlook signals no imminent need for further monetary policy tightening in SA in the short to medium term, especially with economic growth forecasts being revised lower in recent weeks. Thus we forecast that interest rates would remain unchanged,” said NKC economist Elize Kruger, who expects inflation to increase to 4.3%.

PODCAST: Listen to more commentary on the topic.

Investec economist Kamilla Kaplan expects inflation to moderate below 4% in February to 3.9% as the fuel and food price components are likely to yield lower contributions to the headline outcome.

“The pace of economic recovery remains slow. Consequently, there is no evidence of demand pressure on prices, and cost-push pressures on prices also appear much more contained. Given these forces, inflation is likely to remain relatively contained,” Nedbank economist Busisiwe Radebe said, adding that the Bank will hold off on further interest rate hikes till later this year.

Capital Economics economist John Ashbourne said data published last week, which showed continued weakness in SA’s economy at the start of the year alongside softer inflation, may bring interest rate cuts onto the table soon.

Stats SA will also release retail sales figures for January on Wednesday, following the worst performance in at least 16 years in December.

“Retail sales are forecast to have remained fairly muted in January 2019. While a sizeable drop in fuel prices could have been a supporting factor in January, many headwinds have since then appeared on the radar of consumers, which will depress retail sales figures in coming months,” Kruger said.

Based on the Bureau of Economic Research’s business confidence survey in the first quarter of 2019, sentiment among retailers deteriorated, which signals expectations of a weak performance in the sector at the start of the year.

“Retail sales growth is likely to remain muted for as long as consumer confidence is subdued, credit extension rates remain moderate and wage growth constrained,” Kaplan said.

However, the cut in the petrol price, combined with the introduction of the national minimum wage, may have emboldened consumers to increase spending during the month, FNB chief economist Mamello Matikinca-Ngwenya said.

Wednesday will also see the release of the quarterly bulletin by the Reserve Bank, which will provide further insight into household balance sheets.

“We will be paying close attention to real disposable income growth, household debt and household net wealth, among other indicators, which will help inform our view on the consumer outlook,” Matikinca-Ngwenya said.

menons@businesslive.co.za