ECONOMIC WEEK AHEAD: Data points will remain contained
The week ahead will see the release of producer inflation, private sector credit extension and trade balance data
The week ahead will see the release of April’s producer price index (PPI) for manufactured goods on Thursday, as well as the release of April’s private sector credit extension and trade balance data on Friday.
Just a week after consumer inflation eased, data from Statistics SA will likely show that farm and factory gate inflation, as measured by the annual change in the producer price index eased slightly from March’s 6.2% — but economists say it will still remain at about 6%.
Producer inflation was historically viewed as foreshadowing consumer inflation, which is the key benchmark used by the Reserve Bank’s monetary policy committee to set interest rates. But with modern logistics, producer inflation tends to move in tandem with consumer inflation, but swings more wildly because retailers try to keep prices “sticky” to avoid upsetting customers.
The manufacturing PMI survey for April pointed to an easing in operating cost inflation linked to a slightly stronger rand compared to the prior month but fuel prices reached a record high that month.
Motorists saw the steepest fuel price hike in four years in April, a third consecutive hike. However, higher administered prices after the electricity tariff hike, a weaker rand and fuel price increases should not bring about any sustained upward pressure on prices as food prices should remain under control, Nedbank economist Isaac Matshego said.
On Friday, the trade account is expected to show a small surplus, from the R5bn recorded in March as trade activity is typically affected by Easter and public holidays in April.
The balance of trade is an indicator of the difference in value between a country’s imports and exports and dictates SA’s current account, which is indicative of the country’s trade with the rest of the world.
However, the figures are difficult to predict and economists stress that it is important to look at longer-term trends.
“We anticipate that the trade balance likely narrowed in April amid waning demand in SA’s main trading partners as well as a deterioration in the terms of trade,” FNB chief economist Mamello Matikinca-Ngwenya said.
Friday’s private sector credit extension figures are expected to have increased from the 6.1% recorded in March. Private sector credit extension has been between 5-7% for the past 10 months and will likely remain there in April.
“Much of this increase is ascribed to low statistical base factors in the corporate credit category which comprises 56% of total credit extension,” Investec economist Kamilla Kaplan said.
Corporate credit growth declined sharply in April 2018 and this will boost the growth in the April 2019 figure, she said.
“It is worth noting that household credit is expected to remain relatively buoyant, as suggested by the notable uptick in credit applications in recent quarters,” Matikinca-Ngwenya said.